Notes on Targeting

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Circulated 13 April 2023

There is a fetish for setting performance targets in, among other places, the education and health system. This note draws on economists’ experiences to caution about their use, and illustrates how this has mattered in the health system.

The foundation principle is Gilling’s Law which states ‘how the game is scored determines how the game is played’. Set out by Don Gilling (an accountancy professor from Wellington), a practical illustration is that by raising the value of scoring tries, rugby became a much more open, high trying-scoring game.

The next step is Goodhart’s Law which in its general form says that when a variable is targeted, its relationship with other variables changes. Charles Goodhart is a monetary economist and originally applied his insight to attempting to target the quantity of money to control prives. What he, and others at the Bank of England, found was that the past econometric equations relating the two broke down when they tried to use them for targeting.

However, the result is quite general. It arises as follows. If you characterise a system by a set of equations and add one further equation, the system will appear to function differently despite the underlying equations not having changed. Typically, econometric equations (which are just a sophisticated form of observation) are simplifications of the complexity of the system and the apparent relations get changed.

(A comment for economists. There is talk of ‘the death of the Phillips Curve’. We would expect it to appear to break down if the management of the economy began using the curve in their settings, just as has happened with the money to prices equation.)

Gilling’s Law applies to the way the ‘game’ is ultimately won or lost. It is looser than Goodhart’s Law (i.e. the ‘shapes’), which is about a particular variable which is used to determine the game outcome. (Scoring tries does not in itself determine the game’s outcome, it is scoring more tries and conversions than the other side – and not incurring too many penalties to offset a better try record.)

The next step is about when an intermediate target is established with the target as only an indicator on the way to the ultimate target/score. For example, waiting times in the emergency department of a hospital are not, ultimately, the object of the exercise. But the longer they are, the more likely that object (the wellbeing of the patients) will suffer.

Gilling’s Law and Goodhart’s Law warn that any such target is likely to be corrupted. Patients in ambulances are held outside the point which is triggered by the target definition. They wait just as long but are not recorded in the target measure.

Or in the case of where the target is the number of surgical operations, the tendency is to do many simple ones rather than a single long complex one.

It is not surprising then, that intermediate targeting does not have a good record and is often dropped. That does not mean that we should not record the statistical indicators upon which the intermediate targets are based upon and evaluate them intelligently to see if we can remedy poor performance. But the implication is that there should be many more indicators, rather than mechanically judging performance on a handful of indicators in the way that those with a target fetish do.

The Gilling-Goodhart lemma is that intermediate targets are likely to be corrupted.

Learnings from The New Zealand Economic History of Shocks

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Working Paper for New Zealand Productivity Commission

Introduction

Unexpected shocks to the New Zealand economy are endemic. The numerous small ones have been dealt with by the local initiatives inherent in the market economy and by common sense. However, there are a few big shocks where national action has been necessary. Sometimes those actions have been reasonably successful, sometimes they have been less so. There are lessons to be learned from these experiences. The most salient is that every economy is unique and, indeed, that uniqueness changes over time. Among the particular features which characterise the New Zealand economy is that it is small, geographically isolated and has an economic structure different from most comparable affluent economies. Its political arrangements tend to be thinner, which can enable a more flexible response but which, however, often lack the depth of comparable polities. Size means its intellectual resources are thinner. Isolation has been beneficial in the past – for instance, slowing the arrival of pandemics – but with the increasing global connectivity that insulation is diminishing. Nowadays, overseas crises can arrive very quickly – financial crises overnight – and there will be less time to react. However, the disadvantages of isolation – including being at the far end of physical supply chains – remain. Sometimes the experience of other economies can be used with little adaptation; sometimes the experiences and theories that are internationally available need considerable adaptation to be applied to New Zealand. On occasions, New Zealand has failed to adapt such theories when it has been necessary; too often the analysis has been overly imitative of the United States experience. At the very least, New Zealand economics needs to pay more attention to the experiences of other small open affluent economies.

The full paper is here.

Thinking About Housing Policy

This entry was posted in History of Ideas, Methodology, Philosophy, Social Policy on by .

Presentation to U3A Southland series on Housing in NZ, via ZOOM, 17 February, 2023.

Throughout my life as a professional economist, I have been challenged by the question of whether goods and services should be provided privately or publicly. I recall in the 1960s, when there were strong calls for nationalisation of many things, the then leader of the Labour Party, Arnold Nordmeyer, asking a student audience whether they wanted to nationalise corner grocers. A fair question. Grocers provided goods like food which are fundamental to living but so does health care services which are largely ‘nationalised’. Why treat them differently?

Over the years, I realised the issue was not simply a matter of who should own the business, but rather how it should be regulated; that the ownership was just one means of regulating a business or industry. At the University of Sussex, where I taught, I heard that the classic Labour goal ‘the social ownership of the means of production, distribution and exchange’, should be replaced by ‘the social regulation of the means of production, distribution and exchange’.

That gives a reason for not nationalising grocery stores. A competitive market can be a very effective means of regulating businesses. I add, sixty years on, that today corner grocery stores are increasingly being replaced by a couple of supermarket chains which compete in quite different ways from grocers so their regulation needs a different approach.

These are preliminary remarks to a paper which focuses on the regulation of the housing market, indicating that what I am about to say is set in a wider context. For it is very easy to say a particular market is special, to ignore the fact that much of its speciality applies to other markets which are treated in quite different ways, and then to advocate various ad hoc interventions which lack coherence or effectiveness. A warning though. The housing market is very complicated. I am going to have to focus on some big issues and ignore others. Fortunately this is only the first of a series, and later sessions will cover issues that I have had to reluctantly leave out.

The Time Dimension in the Housing Market

So what is special about housing? It is not sufficient to say housing is necessary. So is food, clothing, healthcare and work. The list of necessities can get very long.

One of the key elements of a housing market – what makes it special and complex – is the time dimension. I warn you that economists have a lot of problems analysing time, but so does everyone else. Perhaps we are more aware of our ignorance.

First, a time dimension comes from people wanting to live in a dwelling for a long time. It would be very inconvenient if we had to move as often as we change what we eat. Doing so would also be very expensive. A rough estimate is that by the time you have paid all the bills – to real estate agents, valuers, lawyers, movers, and allowing something for for housing alterations and the like – you will have outlayed over $30,000 to change your house. Better to stay stuck in your house.

That means households need some dwelling stability. For many that means home ownership. Most people accept that there should be some private ownership, including owning one’s house. It certainly has been a driving force in New Zealand’s evolution. Almost 200 years ago Edward Gibbon Wakefield advised, ‘Possess yourself of the Soil and you are Secure.’ At first the new settlers wanted to have their own farms; as New Zealand urbanised they wanted their own houses on their own land – usually with a garden. They can alter and extend their own home. A feature of New Zealand’s housing stock is that it is very varied – heterogeneous. Even if you put New Zealanders in the same type of houses – say terraced ones or apartments – they change them.

There are at least two public advantages for home ownership. One is that the owner – their own landlord – is likely to look after their property more than a tenant would. A second is that it requires the home owner to pay off a mortgage, thereby forcing them to save. When a person starts work their main asset is their labour power; when they retire most will have built up substantial financial and physical assets on average – around two-fifths by value are in property.

Of course there are many who do not own their own houses. That includes young people who havn’t settled down. It is often lamented that home ownership rates are falling. There are many factors affecting these rates, but the most important one is that while my generation bought their first homes in their twenties, today the equivalent generation’s purchase is more likely to be in their thirties, just as they are more likely to hold off having their children. If you compare home ownership for those above the age of forty you will find that the rates are much the same as they were in the past.

The second reason for not owning a home is those who cannot afford the deposit to buy a house. The problem they have is the lack the wealth despite, in some cases, having a good income. I am not going through a full analysis, but people frequently confuse wealth and income and in the case of the housing market they try to fix up the wealth inequality problem by supplementing income. You can be sure that if they try, they will end up with a not very good policy.

If the first time dimension issue involves people’s housing preferences of wanting to live in the same place for a while, the second big issue is that dwellings themselves exist for a long time. That means it is quite difficult to add substantially to the housing stock. Build 10,000 houses and less than 1 percent has been added to the total stock of New Zealand housing. Yet it is an enormous strain on the economy to build 10,000 houses. The strain is compounded if we decide we also need to improve the quality of the existing housing by, for example, remedying damp homes.

The Neoliberal Policy Approach from Thirty Years Ago

I illustrate the consequences of the two time dimensions by going back thirty years to the early 1990s when housing policies were dramatically changed, a change which still affects our housing policy thinking. You might summarise the new framework as Ruthanasia, presaged by Rogernomics, but in the international context it would be called ‘neoliberal’.

I have written a lot on the policy changes at the time; I do not propose to discuss all their elements; only the salient ones which frame our current policies.

Rogernomics was a response to what was widely seen as too much intervention in the economy. In my judgement the balance between private and public provisions favoured the public side of the scales more than it should. Where I disagreed with the Rogernomes is that their solutions were extreme. We can see this in what they did to the housing sector.

Neoliberals thought that the housing market could be largely left to itself, just like the markets which provide food and clothing. Because they saw no specific food policy nor a specific clothing policy, they concluded there was no need for a specific housing policy. So they heavily wound back government involvement in the housing market. I am not going through a detailed account of all the winding back of public interventions they made. I focus on the big mistakes which could be summarised by saying that they ignored the peculiarities of housing in terms of those time dimension issues

The Ministry of Housing and Urban Development

When the Labour (Ardern-Peters) Government came to power in 2017, they found housing policy was scattered across a number of departments with little coherence. One is reminded of Geoffrey Palmer’s comment about how the newly elected Lange-Douglas Government in 1984 grasped the levers of power and found they were not connected to anything.

To its credit, the Ardern-Peters Labour Government established a Ministry of Housing and Urban Development. It is easy to destroy a government department but it takes time – ten years perhaps – to build up a fully effective one. This one is only four years old. Don’t be misled by a department’s glossy presentations and flowery language; it is still settling in.

Instructively, the Ministry outcomes – how it defines it success – include ‘a self-adjusting system – The system works together and with communities to review, respond and adapt.’ The expression ‘self-adjusting’ is a signal that it accepts the neoliberal belief that a housing system can be devised so that it does not need constant intervention. I wish.

Nor does the Ministry yet seem to have compiled a comprehensive historical data base. There are a number of studies with public housing data but nothing as easily accessible on private housing. The Ministry seems to think of itself as a Ministry of Public Housing.

I give a couple of examples of where a comprehensive data base was important. The First Labour Government is acclaimed for its housing policies, which included building and renting out state houses and the State Advances Corporation lending to people to buy and own their own houses. It is often overlooked that these policies were founded on a comprehensive survey of the housing market commissioned by the preceding Coalition Government – Gordon Coates actually.

That is an example of the usefulness of a good data base. The difficulties when you don’t have one are well illustrated by the current housing market.

After the neoliberal revolution, we lost interest in having a comprehensive account of the housing market. The slogan was the market would look after itself. It didn’t. Over the next quarter of a century there was a steadily growing imbalance between housing supply and demand. There was no data bank to easily monitor the deterioration, while other policies reinforced the imbalance. (Immigration is particularly relevant here, since migrants add to housing demand.)

So there does not appear to be any government agency concerned with the whole of the housing market, despite there being considerable interaction between the public and private markets. For instance if there is insufficient public housing, some people will end up in the private sector (which includes living on the street); people buying their own houses reduces pressure on public housing; the housing construction industry provides both public and private housing.

By the time the Ardern-Peters Labour Government took over, the imbalance was evident to all. The government was deemed to be at fault, although it was obvious that the imbalance had been building up over the years and that the failures should be attributed to policy slackness on the part of previous National and Labour governments. The public outcry implied the government could fix the mess created by over-reliance on the private market for a 25-year period in, say, 25 days. Five years later the government has made some progress, but frankly, if it takes its eye off the ball, the housing situation could easily regress. Without that comprehensive data base who would know – other than those marginally housed?

The Housing Bubble

Thus far I have been talking about the stock of housing. A major recent concern has been its price and affordability. There is no problem here for a neoliberal. The right price is what the market sets, and affordability reflects scarcity. Pressed, they argue the problem was the restrictions imposed on land use by urban authorities; such planning restrictions are an anathema to neoliberals. (Recall that the Ministry for Housing is also one for Urban Development, acknowledging these concerns.)

Allow me to skip a discussion on town planning (although I footnote for a country trying to reduce its carbon footprint it is odd to be extending the urban edge when our largest permanent global warmer is emissions from cars.) I am going instead to offer an alternative to the neoliberal account which explains the housing bubble.

Speculative bubbles are common. You have met many such bubbles through your life. The Global Financial Crisis of 2008 was an example, as was the New Zealand finance companies crash about the same time. The 1987 share market crash was another example, as was the 1928 Wall St Crash, but that was before our time. There are at least two major bubbles going on at the moment – one in the crypto-currency market and one in the Chinese Financial System. There are probably others – we often find out about them too late.

Minsky’s Analysis

Hyman Minsky was not recognised until after he was dead, but today his work is considered a powerful way to understand speculative bubbles. So powerful that I am going to explain it in some detail before applying it to the housing market.

Minsky argued that ‘the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycle’. He concluded that such financial instability – and the booms and busts that accompany it – are inevitable in a so-called ‘free’ market economy – unless government steps in to control through regulation, central bank action and other tools – a policy conclusion which neoliberal economists find uncomfortable.

His key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. There are three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.

The hedge borrower can make debt payments which cover interest and principal from current cash flows from investments.

For the speculative borrower, the cash flow from investments can cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal.

The Ponzi borrower – named after Charles Ponzi who ran the famous ‘Ponzi scheme’ in 1920 – believes that the appreciation of the value of the asset will be sufficient to refinance the debt for their insufficient cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.

These three types of borrowers each dominate in one of the three phases of the financial bubble.

During the Hedge Phase, banks and borrowers are cautious. Loans are minimal so that borrowers can afford to repay both the initial principal and the interest. It is the ‘Goldilocks’ phase of debt accumulation – ‘not too hot not too cold’.

The Speculative Phase emerges as confidence in the financial system recovers during the Hedge Phase. Borrowers no longer invest on the basis that they can pay both principal and interest. Instead loans are issued where the borrower can afford only to pay the interest. As the loan principle comes up for payment, they rely on being able to refinance (‘rollover’) their debt, borrowing the principal again. The decline towards financial instability begins.

As confidence continues to grow, investors move into the Ponzi Phase in which they neither pay the interest on the loans nor repay the principal. They rely on the capital appreciation from what they have invested to finance their investing.

Eventually, Stern’s law– if something cannot go on for ever, it will stop – takes its toll. The asset-price appreciation that the Ponzi investors rely upon cannot go on forever either, especially as it needs to accelerate. Some Ponzi investors withdraw, and there are not enough new investors introducing new cash to fund the withdrawing Ponzi investors. And so the bubble pops at the ‘Minsky Moment’.

After the Minsky Moment, everyone tries to get out of their investment commitments, turning them back into cash. Ponzi borrowers are forced to, because they have no cash; speculative borrowers can no longer refinance the principal even if they are still able to cover interest payments. All the borrowers have been borrowing from someone else who may be unable to recover what they have lent. The result is a line of collapsing financial dominoes, with innocent lenders suffering as well as guilty borrowers.

Not every one suffers. There are those who have taken their margin on each transaction, such as sharebrokers, investment advisers, real estate agents, investment promoters. All have an incentive to encourage speculative investment, which biases the public view towards investing in low quality activities. Others who are beneficiaries are those who invest and cash up before the Minsky Moment. There is also a more sophisticated group of investors who ‘short’ the market, that is, contracts to sell the assets at high prices after the Minsky Moment; you may have seen the film based on Michael Lewis’ The Big Short, which described it happening after the Global Financial Crisis.

The New Zealand Housing Bubble

Minsky developed his theory for financial markets which involve paper assets – such as shares. The housing market is a little different but it fits Minsky’s model well.

Today the housing market is largely funded from borrowing from banks. From the 1980s, after the financial liberalisation which, among other things, ended the trading banks having separate savings banks, the housing market was in Minsky’s Hedge Phase. The banks lending was cautious with their funds for lending largely coming from deposits and loan repayments. Mortgages were advanced on the basis that borrowers could afford to pay the interest and repay the initial principal over a long period reflecting their working lifetime.

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Minsky’s Speculative Phase began in the early 2000s, where following 9/11, the George W Bush administration flooded international markets with dollar liquidity. Our trading banks turned to those international markets for additional funds, which were used to increase the supply of mortgages.

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Some simple economics. It became easier to purchase a house because there were more funds. But the supply of housing did not increase much. So the price of housing rose. You can see the change in trend quite markedly in the graphs. Borrowers still serviced their mortgages but they were now getting a higher return from their investment in housing, from the capital gain from the faster appreciation of prices.

There was almost a domestic financial crash. In 2008, trading banks were borrowing about $30 billion a month in offshore markets, partly to increase their advances but mainly to roll over existing borrowing which was short term – three months – much shorter than the mortgage advances they were making to house owners. During the GFC, financial markets almost seized up (as the jargon would have it), that is international lenders in crisis became unwilling to roll over their past advances – to everyone, not just to New Zealand banks. Fortunately, skilled international cooperation between the central banks of the world prevented the catastrophe. If you want to see what could have happened you might look at the experience of the British mortgage lender Northern Rock (Building Society), which crashed in 2007 and had to be nationalised.

New Zealand managed to get through the GFC reasonably lightly compared to some other countries, and the rise in house prices checked somewhat.

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However after 2013 the housing market moved into a Ponzi Phase in which people were paying too much for the houses they purchased. It was partly over-confidence but nominal interest rates were low, which meant that house purchasers could service larger mortgages. Again there was not much increase in the housing stock, so the price of housing went up dramatically.

The government tried to restrain the house price rises including imposing a capital gains tax on houses which were quickly resold and loan-to-value requirements on lenders. Additionally, it ring-fenced rental income so that landlord losses could no longer be charged against other income – the capital gains they were making remained untaxed. There was borrowing guidance given by the Reserve Bank to the trading banks.

Competition among the trading banks stimulated the lending markets and house prices. Moreover the real estate industry and those advertising real estate – including their journalists – encouraged the view that house purchasing was a good investment, with the implication that it was better to purchase now than later, when prices would be higher.

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By 2021 house prices were about double what they would have been had the mild increases of the 1990s had continued.

The inevitable happened, especially when mortgage interest rates began rising following rising international interest rates. Because housing is heterogeneous by housing type and location there was not a single Minsky Moment, so house prices began to fall in different regions at different times. By the end of 2021 they were falling everywhere.

People selling houses were now taking capital losses relative to the market peak; some even sold below what they originally paid for the house. Rising interest rates mean that many mortgage holders are finding it difficult to service their debt when it has to be rolled over and have to cut back on other spending. Because the trading banks factored in their lending criteria the probability that interest rates would rise there are, currently, only a few forced house sales, but numbers are rising.

Even so, current housing prices remain badly out of line with consumer prices and affordability. One benefit is that it is easier to become a first-home owner, but for some the required debt servicing is still unaffordable, even if they have a deposit.

So the housing bubble has popped. You could criticise the government or the Reserve Bank for popping it, but it would have happened anyway – Stern’s law cannot be avoided. The longer the Ponzi Phase of the bubble lasted, the worse would be the following downturn and the more innocent who suffer. The measures that were taken to reduce the bubble, and hence the muddle which follows the Minsky Moments, were not enough to prevent it.

It is difficult for the government to soften the effects of the bust, because those that benefited from the upswing – those who sold out early, cashing up their capital gains, or who benefited from the transactions – are not going to give up their winnings. Because there was no capital gains tax on house price gains, there is no capital reserve to support those suffering capital losses, assuming they warranted such support.

Creeping Away from the Neoliberal Framework

With hindsight Minsky’s analysis is obvious – even if it was not at the time. I promise you that there will be another Minsky bubble in some financial market which will suck in naive investors. What I cannot tell you is how long the current downswing will go on, how far housing prices will fall before the market recovers.

The standard neoliberal analysis concludes market prices cannot get badly out of line with fundamentals so Minsky bubbles cannot happen; there is no need for special market regulation. They fail to heed the comments of Alan Greenspan, once chair of the American Fed (central bank), and a famous proponent of neoliberal policies for financial markets. ‘I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms … I discovered a flaw in the model.’

And so, step by step, the harsh realities of the housing market are forcing us to revise the neoliberal policy framework which was adopted in the early 1990s. We have many steps to go.

A pundit column which summarises the first half of the paper is here.

SOME BACKGROUND TO BRIAN EASTON.

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Headlines

Born March 1943 in Christchurch to Harry and Thelma Easton. Eldest of three. Keith (1944-2015), Jean (1950-)

Married Jenny in 1966. We went our separate ways from 1996. Anita (1971-); Tama (1974-)

Education

1947: Selwyn St Kindergarten

1948-1953: Somerfield Primary School

1954-5: Christchurch South Intermediate

1956-1960: Christchurch Boy’s High School

1961-63: University of Canterbury

            BSc(hons) in mathematics

            D.Sc (2003)

1964-66: Victoria University of Wellington

            BA in economics.

Employment

1963-66: NZIER (research assistant)

1966-70: University of Sussex (lecturer in economics and social statistics)

1970-81: University of Canterbury (lecturer in economics)

1981-86 NZIER (director)

1986 -: Consultant and scholar

            1977-2014: Listener Economics Columnist

            2014-: Pundit Economics Columnist

Web Items with a substantial biographical dimension

An account of my economics career

IN OPEN SEAS:

            Part I: On the Seashore: (1943-1970)

            Part II: Launched (1970-1986)

            Part III: Paddling (1986- )

Paradigms Of New Zealand Economic Growth: a Memoir

Part I

Part II

Being a Public Intellectual

Interview by David GrantBiography of A Public Historian: Brian Easton

Working with the Maori: Consultancy, Research, Friendship

Here is a description of a dispute I was involved in which says something about my scholarly style.

What Happened in July 1984: and the Aftermath

On the website are many short items which sketch out small parts of my life (and pay tribute to people I have worked with). I think of myself as a bit of a Forest Gump; we all are.

I hold, or have held, the following

Books and Monographs

Honorary Positions and Distinctions

Brian’s BOOKS & MONOGRAPHS

This entry was posted in Miscellaneous on by .

Books

The Future of New Zealand Medicine: A Progressive View (Peryer, 1974) 150pp – joint editor, with D.W. BEAVEN, and contributor.

Social Policy and the Welfare State in New Zealand (Allen & Unwin, 1980) 182pp. (Japanese Edition, 1987)

Pragmatism and Progress: Social Security in the Seventies (University of Canterbury, 1981) 128pp.

Economics for New Zealand Social Democrats (McIndoe, 1981) 156pp.

An Introduction to the New Zealand Economy (University of Queensland Press, 1982) 339pp. with N.J. THOMSON.

Wages and the Poor (Allen and Unwin, 1986) 100pp.

The Making of Rogernomics (Auckland University Press, 1989) 212pp. editor and contributor.

Unemployment in New Zealand (Dunmore Press, 1990) 191pp. with I. SHIRLEY, C. BRIAR, & S. CHATTERJEE.

The Commercialisation of New Zealand (Auckland University Press, 1997) 288pp.

In Stormy Seas: The Post-war New Zealand Economy (University of Otago Press, 1997) 343pp.

The Whimpering of the State: Policy after MMP (Auckland University Press, 1999) 268pp.

The Nationbuilders (Auckland University Press, 2001) 318pp.

Globalisation and the Wealth of Nations (Auckland University Press, 2007) 234pp.

Heke Tangata: Maori in Markets and Cities (Oratai Press, 2018) 130pp.

Not in Narrow Seas: An Economic History of Aotearoa New Zealand (VUP 2020) 682pp.

Monographs

Consumption in New Zealand 1954/55 to 1964/65 (NZIER Research Paper 10, 1967) 77pp.

Profitability and Performance in Post War New Zealand: The Impact of the Terms of Trade (Victoria University of Wellington Economics Department, 1980) 26pp.

External Impact and Internal Response: The New Zealand Economy in the 1970s and 1980s (NZIER Discussion Paper 25, 1982) 18pp.

The Impact of Taxation on Alcohol Consumption (Alcohol Liquor Advisory Council, 1982) 23pp. with L.B. KAY.

The Impact of the Public Sector Security Ratio on the On-lending Interest Rate of Finance Houses (NZIER Contract Research Unit Paper No 19, 1983) 10pp. with L.B. KAY.

By Rail or Road: A Case Study (NZIER Research Paper 27, 1983) 105pp. with P.A. MARKS.

Income Distribution in New Zealand (NZIER Research Paper 28, 1983) 281pp.

Studies in the Labour Market (NZIER Research Paper 29, 1983) 208pp. editor and contributor.

Subsidization of Urban Public Transport in New Zealand: the Economic Justification and Methodology for Apportioning Benefits (Urban Transport Council, 1984) 73pp. with C. PROPPER and N. WILSON.

Markets, Regulation, and Pricing (NZIER Research Paper 31, 1985) 142pp. joint editor with A.E. BOLLARD, and contributor.

Economy Wide Models of New Zealand (NZIER Research Paper 33, 1986) 281pp. with G.M. WELLS.

The Exchange Rate Since 1981, Performance and Policy (NZIER Discussion Paper 30, 1986) 24pp.

Is Victoria a Computable General Equilibrium Model? (PEP Occasional Paper No 88, 1986) 8pp.

The Quarterly Survey of Business Opinion (NZIER Research Paper 36, 1987) 109pp. joint editor, with R. D. BOWIE, and contributor.

The New Zealand Economic Experiment (Research Paper 174, University of Melbourne Department of Economics, 1987)

Economic Instruments for Social Policy (The Royal Commission on Social Policy, 1988).

Wage Flexibility, Wages, and Free Lunches (Research Paper 180, University of Melbourne Department of Economics, 1987) 25pp.

The Need for Magnetic Resonance Imaging Systems in New Zealand: A Preliminary Evaluation (Wellington Multiple Sclerosis Society, October 1990) 12pp. with R.D. BOWIE.

Open Growth: A Response to the Task Force on International Competitiveness (NZEU, 1990) 67pp.

A GDP Deflator Series for New Zealand: 1913/4-1976/7 (Massey Economic Papers B9004, December 1990) 24pp.

Structural Change and Economic Growth in Postwar New Zealand (Massey Economic Papers B9103, March 1991) 50pp.

Modelling Julianne’s Fiscal Routines (Research Project on Economic Planning, Occasional Paper No 99, 1991) 17pp.

The Real Wage Debate: 1978-1990 (Research Project on Economic Planning, Occasional Paper 101, 1991) 35pp.

Getting the Supply-side to Work (NZAEU, 1995) 80pp.

Towards a Political Economy of New Zealand: The Tectonics of History (Hocken Library, 1995) 29pp.

The Social Costs of Tobacco Use and Alcohol Misuse (Department of Public Health, Wellington Medical School, Research Paper 2, 1997) 36pp.

International Guidelines for Estimating the Costs of Substance Abuse (Canadian Centre for Substance Abuse) with E. SINGLE, D. COLLINS, H. HARWOOD, H. LAPSLEY, & A. MAYNARD (& R. BOWIE) 1997 71pp. (Note Second edition 2002)

The Commercialisation of Education (Central Institute of Technology, Occasional Paper No 4, 1997) 11pp.

The Economic Regulation of Tobacco Consumption in New Zealand (Central Institute of Technology, Occasional Paper No 7, 1998) 16pp.

The Economic Context of the Ministry of Consumer Affairs (Policy Paper No 4, 1998) 16pp. (primary contributor)

Metrology and the Economy (Report for the Ministry of Consumer Affairs, available at www.mca.govt.nz).

International Guidelines for Estimating the Costs of Substance Abuse, 2ed (Canadian Centre for Substance Abuse, 2002; WHO 2003) with E. SINGLE, D. COLLINS, H. HARWOOD, P. KOPP & H. LAPSLEY.

Injecting Drug Use and the Projected Costs of Hepatitis C (Report for the New Zealand Drugs Foundation, 2002)

Taxing Harm: Modernising Alcohol Excise Duties (Report for ALAC 2002)

The Economic and Health Status of Households (Report for HRC 2002)

Assessment of the Social and Economic Impacts of Gambling in New Zealand (SHORE 2009) with S. CASSWELL, E. LIN & R. Q. YOU

Ethnicity, Gender, Socioeconomic Status and Educational Achievement: An Exploration (PPTA 2013)

Work in Progress

In Open Seas: Submitted to publisher; 80,000 words.

Behind the Columns: This is professional memoir based on 100 Listener Columns and the story behind each. It is 140,000 and probably too large for publication.

I am currently writing a NZ economic history for teenagers. About 30,000? words

I am currently writing a report on a history of shocks to the NZ economy.

Brian’s Honorary Positions and Distinctions

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Fellow of the Royal Statistical Society (1967-)

Honorary Research Fellow, Research Project on Planning, Victoria University of Wellington: 1986-2000

Downing Professorial Fellow in Social Economics at the Department of Economics at the University of Melbourne: 1987

Social Science Research Fund Committee Hodge Fellow at Massey University: 1989-

Associate, Institute of Executive Development, Massey University: 1993-2000

Honorary Fellow, Department of Public, Health, Wellington School of Medicine, University of Otago: 1993-

Senior Research Fellow in Social Policy and Applied Economics, Social Policy Centre Massey University: 1994-2000

Chartered Statistician: 1994-

Visiting Fellow in the Department of Politics, University of Auckland: 1995-2002

Professorial Research Fellow, Central Institute of Technology:  1996-2001

Associate, Stout Research Centre, Victoria University of Wellington: 1997-

Marsden Fellow: 2003-6

Adjunct Professor, Institute of Public Policy, Auckland University of Technology: 2003-

Fulbright Distinguished Visiting Fellow: 2004-

Distinguished Fellow of the New Zealand Economics Association: 2006-

Honorary Research Fellow, Centre for Social and Health Outcomes, Research and Evaluation, Massey University: 2007-     

John David Stout Fellowship: 2008

NZIER-NBR Economist of the Year: 2009

Honorary Research Fellow, National Institute of Demographic and Economic Analysis, University of Waikato: 2011-

Research Associate, Retirement Policy and Research Centre, University of Auckland: 2013-

IN OPEN SEAS: PART III: Paddling (1986- )

This entry was posted in History of Ideas, Methodology, Philosophy, Portraits on by .

Brian Easton (Journalist) Interviews Brian Easton (Economist)

Part I is IN OPEN SEAS: PART I: On the Seashore: (1943-1970);  Part II is IN OPEN SEAS: Part II: Launched (1970-1986). Part II and Part III were  going to be published as a companion pieces in Asymmetric Information but there have been no issues since August 2021

Why did you not go back into a job in a university after you left the Institute?

I applied but was never accepted. In one case I was told that I was ‘too controversial and published too much’. A strange response from a university. No New Zealand university ever made me a tenured job offer. A high-status Australian one did, but I declined because I wanted to stay in New Zealand. I have since thought that taking it would probably have been better for my wellbeing and pocket; whether New Zealand would have been better off can be debated.

So you became a consultant?

For over 30 years. Professionally, it has been an interesting life compared to being isolated in a university. But it has its limitations. You have little control on what you do; many consultants have a reputation for delivering what the client wants. Consulting can compromise your independence. During the flat-tax debate in 1988 – a crucial part of the collapse of the Fourth Labour Government – I had been commissioned to write a Listener feature on it. (Them were the days.) The client for whom I was working asked me to hold off because they thought it might undermine the standing of the work I was doing for them.

What happened?

I had already filed the story.

What do you think of being a consultant instead of an academic?

It is a matter of taste, but probably not mine. I missed colleagues. One of the joys of being an economist has been a robust debate with them – lots of disagreement, much learning, some convergence and ongoing friendships. My impression is that open debate largely died with Rogernomics and has not revived. (I have recently joined a group which meets once a fortnight for a lively discussion.)

            I missed the institutional support including the research infrastructure like libraries and computers. I missed the salary and also the status. One should not underestimate how a position in an institution gives a person a public role. New Zealand operates on the basis of ‘who you know, rather than what you know’– status over competence. Most of all, I missed working with lively young student minds, watching them develop into members of the profession.

I thought consultants were well paid?

They may be, but I chose to make just enough to support my family and use the free time to maintain the research program which I had hoped to run when I was at the NZIER.

Tell us about some of the highlights of your research programs.

I have already mentioned distributional economics. My first major discovery was that poverty mainly occurs among families with children. The basic paradigm I developed remains the standard way we measure poverty almost fifty years later (although there is an evolving one directly assessing households’ experiences and consumption which I discussed in the late 1970s). That revolutionary finding is now the conventional wisdom to the point that the initial research work is forgotten.

            A lot else came out of my distributional research. While trying to explain poverty I had to think about non-market economic activity. This was well before the popular, but uninformed, fashion to criticise GDP. It has led, among other things, to the exceptionally innovative Chapters 29 and 38 on the role of nonmarket household activities in economic developments in Not In Narrow Seas, in a book with many innovations. Another dimension will be seen in the central role the environment plays in the book.

            One stunning discovery was that I found a structural break in many economic series around 1966 or 1967. I eventually identified this as the wool price collapse in December 1966. The mechanism involves a thorough grasp of distributional economics including the terms of trade and the real exchange rate and how regulation transfers rents. Get your head around that and you begin to understand why the period after 1966 is so different from the first two decades after the Second World War.

            The economics is described in In Stormy Seas, which sets out the model of the Small Open Multi-sectoral Economy we were developing at the Institute a decade earlier. (The political ramifications are detailed in Not In Narrow Seas.) Later I enjoyed working on Treasury panels on short-term and long-term forecasts; they told me they appreciated my contribution.

            As well as working on the macroeconomics framework under Rogernomics, I got drawn into evaluating its microeconomics. That led to The Commercialisation of New Zealand. We have never worked out a coherent regulatory framework. Hence the ‘leaky buildings’ saga. We are better at providing ambulances at the bottom of the cliff than fences at the top. Even then, the ambulances are often late.

            Inevitably, much of my consultancy was about market regulation. Particularly satisfying was the work I did on tobacco and alcohol. On one occasion, working on alcohol taxation, I identified an anomaly which meant that light spirits – flavoured raw alcohol – could be sold so cheaply that an hour’s wages provide enough liquor to kill oneself; as happened to two young men while I was investigating the issue. I took the finding to the Treasury who were aghast at the tax loophole. Within months they removed it and light spirits disappeared from the shelves. The Alcohol Advisory Council said they never had a such a quick turn around on a policy.

            Devising a health system is a challenge of advanced regulatory design. I got involved because I was teaching medical students at the Wellington School of Medicine. I am proud of my contribution as economic adviser to the Campaign on Public Health, which successfully resisted the proposed privatisation of the public health system in the early 1990s.

            I also evaluated healthcare delivery. The greatest achievement may have been my contribution to the WHO report International Guidelines for Estimating the Costs Of Substance Abuse, which anchors social-costs studies into cost-benefit analysis and microeconomic theory. It has not had a lot of impact in New Zealand where some of the cost-benefit, social-cost and social-investment studies stray a long way from orthodox economic theory.

            On the basis of my Commercialisation book I was asked to teach public policy to political studies students at Auckland University. This led to the updating The Whimpering of the State; Policy After MMP. (I am just publishing a related paper twenty years later.) I have a distinctive approach to policy studies which focuses on how policy is made – the policy process as political economy. I don’t think studying it is popular, here in Wellington anyway, because it involves assessing what actually happened and usually the process is – as Bismarck described it – like making a sausage. So the kudos goes to those who focus only on the end product. Outside Wellington, it is hard to get a grasp of the details. (You can see this by comparing my later work with Social Policy and the Welfare State, which I wrote when I was still in Christchurch, although Pragmatism and Progress: Social Security in the Seventies, published about the same time, is a precursor of the political economy approach.)

            Another consultancy area was working with Maori, especially over Treaty claims. I really enjoyed that. It also opened me up to different parts of New Zealand’s regions and history which economists don’t usually come across. I even published a scholarly paper on Te Tiriti o Waitangi which came out of wrestling with the property rights involved in one claim. My latest contribution to Maori development is Heke Tangata: Maori in Markets and Cities.

            On reflection, I am surprised how involved I was in historical research; there are over 300 items on my website with a ‘history and political economy’ tag. It comes from my general interests, from an applied economist using history to test theories but also from the recognition that if you want to understand anything you need to understand its origins. So most of my studies include a historical dimension. For instance, Policy and Pragmatism goes back to the 1890s (because of recent scholarly work I’d now go back even earlier).

            I also wrote The Nationbuilders, trying to understand how New Zealand thinking evolved up to 1984. It later led to my curating a New Zealand Portrait Gallery exhibition, 60 Makers Of New Zealand: 1930-1990, covering much the same period but with a wider remit.

            The Marsden Fund awarded me a grant which enabled the writing of Globalisation and the Wealth of Nations. (I learned some new bits of economics in the process: the power of the economies of agglomeration and the bizarre way they work. They are not yet central in New Zealand’s economic thinking, although the Treasury picked them up in the late 1990s when they were focusing on the future of Auckland.) International experts who read the book said it was an important contribution, but the Marsden Fund did not extend the grant – apparently they had higher priorities than the New Zealand economy in an international context – so I was unable to continue the analysis or promote it.

            I looked around for an alternative project which would not be so expensive – not involving overseas travel. Perhaps it was inevitable I would write a history of New Zealand; I had been reading about it since I was in primary school. By picking up bits of funding here and there – I am very grateful to all of them – I wrote Not in Narrow Seas: The Economic History of Aotearoa New Zealand. It is a huge book starting 650 million years ago and it draws on most social sciences. It also contains a lot of economic theory. The publisher’s blurb on the back cover says that it is ‘my greatest work, the fruit of a lifetime of research and reflection’.

            In a way, I hope that is not true. As my Pundit columns indicate, I am still researching, learning and reflecting. Currently I am working on my next book In Open Seas, which is forward looking.

            I suppose I should finish a list of major achievements by mentioning my columns. There are over a thousand of them. I was greatly touched by a scholarly historian who went through them over his period to get a feel about what was going on. They show developments in my thinking, say, about wellbeing which goes back to the 1960s, and on the changes in public administration, which begins with my identification of generic management in the early 1990s.

Whew, Is That All?

The highlights. I left out many other things I have done including some theoretical innovations. I am very proud of many items on that list, even if I have had to omit them here. Most are listed on my website www.eastonbh.ac.nz and on www.pundit.co.nz but both are bits of rabbit warrens, I’m afraid.

In Summary?

While I’d like to think that my writings have already made a difference, and will make a difference, to New Zealand long after I am gone, I am not optimistic. We have painted ourselves into a problematic development corner; that is a message of my latest book, Not in Narrow Seas.

That is a downbeat to finish on. Can you end a little more cheerfully?

Bruce Jesson, reflecting on his life said ‘[i]f you had said to me, when I was 17 or 18, “you’ll spend your life writing, you won’t make any money, you’ll publish magazines, you’ll publish books,” I’d have thought: “Wonderful. What better a way to spend your life?”’ My sentiment too.

IN OPEN SEAS: Part II: Launched (1970-1986)

This entry was posted in History of Ideas, Methodology, Philosophy, Portraits on by .

Brian Easton (Journalist) Interviews Brian Easton (Economist)

Part I is IN OPEN SEAS: PART I: On the Seashore: (1943-1970) This was going to be published as a companion piece in Asymmetric Information but there have been no issues since August 2021

From Sussex University to Canterbury University?

It was very different economics department in 1970 from Sussex or from the one I had left seven years earlier, having shifted towards the mathematical economics paradigm. The jewel was Leslie Young, who had a terrific ability to identify the assumption – the equation – which gave the interesting outcome in a model. In most economics papers the writers have not got the foggiest idea of why they are getting their results. Tony Rayner headed econometrics where I did most of my teaching; the operations analysis group under Hans Dallenbach was also invaluable.

No non-mathematical economics?

There were residual appointments before HOD Bert Brownlie, who was appointed in 1965 after I left. I particularly valued Wolf Rosenberg, who was thoroughly trained in the 1940s but who also had that Central European gymnasium (high school) training. (One of his classmates was Albert Hirschman.) We had long conversations in which I would explain recent developments in economics. Wolfie, ever the gentleman, would patiently probe. Sometimes it would be the other way around with him presenting a traditional economics perspective. (We might disagree on ideological issues, although it was from Wolfie I really became conscious of the importance of full employment.) The dialogue was extremely valuable; if you cannot explain your economics to an intelligent, educated, informed person then you have not understood it yourself. (Later I would have similar discussions with Bryan Philpott and Jas McKenzie, although there was less divergence in our paradigms.)

What research did you do at Canterbury?

Lots. It was centred on distributional economics. When I got back I realised that it was a huge area waiting to be opened up. It proved much bigger than I expected, not only for ranging from welfare economics to statistics. I found myself having to use the standard tools from macroeconomics, growth economics and microeconomics. It was not easy. Where else in economics do you regularly meet bimodal and trimodal asymmetric distributions?

            Distributional economics offers a distinctive perspective on the economy as a whole. The standard economics approach is to assume distributional change does not matter. If it seems relevant – say, in housing analysis – the conventional wisdom about distributive matters is ad hoc without integrating the analysis.

            One eventual publication was Income Distribution in New Zealand, which brought together all the available data. I started off the research program with the conventional assumption that the income distribution was getting more unequal (there was much less data on wealth). It comes from a nineteenth-century vision that things are always getting worse under capitalism – a common conventional view today. But the data contradicted the assumption. Up to the early 1980s, the post-war income distribution was getting more equal on almost all measures. So I had to give a theoretical account of what had happened rather than just report the inequality change. (Chapter 50 of Not in Narrow Seas describes what has happened since.)

            The income distribution affects the political economy – the point of David Ricardo’s analysis. Very often the distributional impact of a policy change far exceeds the output change. The study of distributional issues opens one up to a holistic account of society and a more nuanced account of policy.

While you were at Canterbury you became the Listener economic columnist. How did that come about?

The first columnist was Conrad Blyth but he went on sabbatical to the OECD. I think they might have chosen me because I had submitted the occasional article and I was writing regularly in the New Zealand Monthly Review. I was also doing a lot of public interviews; broadcasting was much more decentralised in those days, and contributions from Christchurch were valued.

People say the columns (usually) read well. How come?

I don’t really know. It must be partly because I read omnivorously. Practice is important. I once took an economics assignment I had written to my tutor, Alan Danks, who said that I had got the economics broadly right but it was badly written. He added – you would not dare say this today – ‘Writing is a bit like making love; nobody can teach you, you learn with practice.’

            I find it hard to write without a clear notion of my audience. That is a bit different from the lecturer who has a captive audience who bloody well have to take notes.

            While I was at the Institute I tried having a guest contributor for every second column. It was not a success. Typically he or she could not meet the length requirement, did not meet the deadline and could not write for the Listener audience.

Why did you give up after writing columns for 37 years?

I was sacked.

Why?

The editor never told me. Today’s Listener is very different from the one I started writing for.

You’ve kept writing columns?

I write a longer column weekly for the Pundit website. Partly to clarify issues for myself, but also because a number of economists who valued the Listener column encouraged me to keep on.

            The columns I write mediate between the economics profession and the public, keeping them in touch with the informed debate. Sure, they are my views but usually they get checked out by other informed people including, sometimes, by those in government departments. Sometimes economists who have been in the heat of a policy battle have thanked me for a column even when I have criticised the resulting policy.

            There is a naive tendency for outsiders disagreeing with a policy to assume economists on the inside have failed in their analysis. Sure, they make mistakes but in my experience the cadres in the top departments are more competent than their university training – a consequence of the intense debates in which they participate. But announced policy does not always follow expert advice.

            Because economics is a discipline, an outside economist can often make a reasonable stab at the internal policy debate. I always assume on contentious policy issues that judgement is split 60/40 but you can’t predict which way. I try to get this across in what I write for the public. Perhaps I have been the insiders’ outsider, although readers might think I was the outsiders’ insider.

            Much of the business commentariat is vigorous and opinionated, but frequently uninformed in the best Mencken tradition – neat, plausible, and wrong. Listener features are often like that, One of the advantages of not writing for it any longer is that economists no longer complain to me about the poor-quality pseudo-economic features it occasionally publishes. (I was never consulted.)

Were your columns the reason that you were appointed to director of the NZIER in 1981?

Because of my research and my public contributions, I was already connecting with the Wellington economic community, including with some of the key appointment-board members. Bryan Philpott told me he wanted me move the Institute to the university, but for reasons that remain unclear, powerful figures in the economics department were not interested. Jas McKenzie hoped I would help balance the neoliberals in Treasury. Later I was told they were very opposed to my appointment; I did not know this at the time.

How did you find the Institute?

I went there on a misunderstanding. When I had been a research assistant there in the 1960s, it had a good funding base arising from business members’ contributions having been built up for a couple of years before it began operating. That had gone and I found myself under unexpected funding pressures.

            My vision, reflecting similar institutions overseas, was that there would be substantial public funding which would enable independent research programs. In fact, the funding was increasingly tied to contracts, so that while the Institute could do projects it was difficult to bring them together in a coherent way. Those pressures increased as public funding was withdrawn. The NZIER you see today is a consulting firm, very different from Blyth’s vision.

So the NZIER failed to do much research while you were director?

To the contrary, I am proud of what we achieved, as said my outgoing address: The Exchange Rate Since 1981, Performance and Policy (NZIER Discussion Paper 30), which brought together the research program over my time. Some of the research we published remains significant. We had a terrific team, including Alan Bollard and two women, Carol Propper and Nancy Devlin, who became senior economics professors in Britain. Its research performance and output when I was there was probably the highest in its history, although some may argue that Blyth achieved more and I greatly admire its achievements in industrial economics under Alan Bollard.

Then why did you leave?

When my five-year term ended, I declined the offered renewal. The financial pressures were wearing me down. The main reason was that a director has stewardship responsibilities and since it was clear that I was not acceptable to key public sector stakeholders, the steward stepped down.

            I had written a Listener column discussing economic interventions. It rejected Muldoon’s approach but went on to discuss when intervention made sense. A Treasury official told a friend that because of the column, the NZIER would get no general funding from Treasury. Not long after, we were cut out from a major contract despite the Minister of Finance directing we be involved. This happened before Labour took over in July 1984.

            Sometime after it did, the Reserve Bank advised us that it would end their base funding which gave us some research discretion. They made the decision while I was away and there was no consultation. After the Rogernome who led the charge departed, the RBNZ Governor apologised for the decision but said it could not be reversed. Another senior Bank economist told me that he had gone through the Bank’s papers (which I have never seen) and was appalled by what was going on.

            I hoped that when I left, the Treasury and the Bank would take a more benign approach to the NZIER and return to untagged funding, so avoiding transformation from research institute to consulting firm. They didn’t. That was one reason my immediate successor, David Mayes, familiar with the British approach, left after a few months. His successor, Alan Bollard, made a good attempt to hold the ship together but after he left, the NZIER ended up as a consultancy.

Were you not publicly criticising the Rogernomes’ policies at the time?

Not strongly, for the reason that they seemed to know something I did not. Otherwise the model which underlay their policies was incomplete. (I called it the ‘missing equation’.) I was reading the neoliberal economics literature widely, trying to identify what covered the lacunae. (I may well have read more than just about anyone else.) It would have been quite improper for me to have come out with a swingeing criticism of the Rogernomics model before I was certain the model was unsatisfactory.

            I made some cautious comments saying that there were alternatives, careful not to compromise the NZIER. But the Rogernomes required a total commitment and took no prisoners. In any case, I was persona non grata from the beginning.

            For balance, I add that they would probably argue that they saw no place in their ideal world for a research institute independent of consultancy income.

Did you ever find the ‘missing equation’?

What I concluded was that the Rogernomic model was incomplete. It assumed the New Zealand economy was very like the American economy, failing to appreciate the differences. For instance, America is the issuer of the international currency; the New Zealand dollar has no such standing. It was a very colonial – imitative – mind-set.

Weren’t there ideological differences too?

Oh yes. I try to be explicit about my ideology when I am writing. (Some appear to suspect me of a secret agenda, but I am wysiwyg.) My view is probably near the centre of traditional New Zealand thinking. But I won’t let ideology override my technical thinking.

            After I left the Institute there were two major points to be made: Rogernomics was technically deficient and it reflected a different ideological current through New Zealand’s history. I made the points.

The final part of this interview is IN OPEN SEAS: PART III: Paddling (1986- )

Presentation for New Zealand Productivity Commission Launch of Inquiry on Economic Resilience

This entry was posted in Growth & Innovation, Political Economy & History on by .

Thursday 24 November The Commission’s report on the seminar is here. It includes the my overheads which accompanied the presentation.

Introduction

I have been commissioned to prepare a report for the New Zealand Productivity Commission’s inquiry into economic resilience. The purpose of the report is threefold:

1.         to describe how New Zealand has attempted to improve economic resilience over its economic history,

2.         to outline how a sectoral and/or industry perspective might provide insights about the growth process, policy choices or path dependence, and

3.         to outline key learnings from the past that can be applied in future policy.

The report is only part drafted. This presentation describes the work so far with particular emphasis on its learnings.

The presentation is structured as follows:

1. Preliminary thoughts

2. Economic resilience to earthquakes and other natural disasters.

3. The Great Depression and the Second World War

4. Business Cycles

5. The 1966 Wool Price Collapse

6. Oil Price Shocks

7. Financial shocks

8. Economic resilience to pandemics.

9. Conclusions

The topic order is roughly chronological, but similar events from different eras may be gathered together.

1. Preliminary Thoughts

Thus far I have found no satisfactory definition of economic resilience. Among those available are:

“Macroeconomic resilience has two components: instantaneous resilience, which is the ability to limit the magnitude of immediate production losses for a given amount of asset losses, and dynamic resilience, which is the ability to reconstruct and recover.” (World Bank)

“Economic resilience becomes inclusive of three primary attributes: the ability to recover quickly from a shock, the ability to withstand a shock, and the ability to avoid the shock all together.” (Economic Development Association)

“Economic resilience is the ability of a local economy to retain function, employment and prosperity in the face of the perturbation caused by the shock of the loss of a particular type of local industry or employer.” (Simple English Wikipedia)

Their essence is that economies experience (unexpected and external) shocks to which they adapt or otherwise, and that policy can improve the ability to adapt.

There are many such shocks. For instance, approximately 14-15,000 earthquakes occur in and around New Zealand each year. Most of those earthquakes are too small to be noticed, but between 150 and 200 (up to four a week) are large enough to be felt. With a few exceptions – the big ones – the economy responds reasonably well. We don’t measure the number of other shocks but almost certainly they are as numerous, and generally the economy copes.

Rather than imposing a definition on the Productivity Commission, my research strategy has been to write a narrative about the significant shocks to the New Zealand economy over the last, roughly, century focusing on how the economy adapted and policy responded.

2. Economic Resilience to Earthquakes and Other Natural Disasters. 

Since the beginnings of European settlement there have been four large substantial earthquakes with nationwide impacts

            – the 1855 Wairarapa Earthquake (magnitude 8.2);

            – 1931 Napier Earthquakes (7.4, 7.3);

            – 2010-1 Canterbury Earthquakes (7.0, 6.1, 5.9, 6.0);

            – 2016 Culverden/Kaikoura Earthquake (7.8).

There have been no other natural disasters (slips, tsunamis and volcanoes) of similar impacts, although the 233CE Taupo eruption had an enormous impact on much of the North Island which affected the New Zealand economy six centuries later.

Currently the report summarises the policy resilience measures for Earthquakes and Other Natural Disasters as follows:

            – encouraging and regulating for more resilient structures;

            – redundancy in the connectivity systems;

            – insurance;

            – research;

            – public education.

It observes that policy responses can overreact.

3. The Great Depression and the Second World War

This section groups together three separate major shocks because they had intertwined policy responses:

            – The Great Depression;

            – The Second World War;

            – The Postwar Dollar Crisis.

The learnings from the review were

            – diversification of export destinations reduces the impact of a shock from an individual country.

            – diversification of export products reduces the impact of a shock to an individual product.

            – home supply displacing foreign supply – import substitution – is an alternative to external diversification (as well as a means of job creation).

            – stock management can be important.

(Note: little attention was given in the period to diversification of import sources.)

The full report adds a number of cautions and caveats to these learnings.

4. Business Cycles

Most of New Zealand’s business cycles are responses to external price shocks. Typically they are highly damped and one is aware of only one cycle per shock.

The learnings from the business cycle experience are that New Zealand has moved from responding rapidly to external macroeconomic shocks – ‘minibudgets’, ‘fancy footwork’ and ‘fine tuning’ – to a more cautious approach of ‘steady does it’ and ‘touching the tiller’. This partly reflects a change of attitude but it also has a recognition that implementation lags reduce the effectiveness of countercyclical interventions. More commonly, more is left to the economy adjusting through less intervened markets at the microeconomic level and automatic countercyclical responses at the macroeconomic level.

5. The 1966 Wool Price Collapse

I am still working on this section and the next. The wool price collapse was dramatic and arguably the biggest single shock that the New Zealand economy experienced since the arrival of Europeans. Unlike the usual external price shock which was temporary – there may have been a long-term secular change in the relative price level – the wool price collapse was structural (largely permanent).

The (currently tentative) learnings are combined with those in the next section which deals with the oil price shocks.

6. Oil Price Shocks

This section is still being drafted. It deals with two issues: the price shocks themselves and some supply crises which occurred during the resulting turbulence. A key issue is why did New Zealand handle the oil price shocks reasonably well and the wool price collapse badly.

(After the presentation I was asked where Britain joining the European Community in 1973 fitted in. I explained that New Zealand had expected Brentrance and had been preparing for it over the preceiding decade; it was not a shock.)

7. Financial Shocks

To be addressed.

8. Economic Resilience to Pandemics

To be addressed.

9. Conclusions

This is work in progress. At this stage I don’t see any overall conclusions which surprise me. The general ones might be:

            – The economy is subject to ongoing unexpected and external shocks.

            – Generally, the standard market responses deal well with small ones.

            – Institutional design can matter. Quality design is not easy. There is a danger of overreacting.

            – There is a need to maintain a capacity to think through the implications of new substantial shocks; that requires a research program which we have not always had.

The Travails of Big Jim

This entry was posted in Political Economy & History, Portraits on by .

Anderton: His Life and Times, by David Grant. (Te Herenga Waka Press)

Published in READINGROOM Book of the Week: Oh, Jim. On Jim Anderton, the best PM we never had (October 27 2022).

Despite the country being dominated by dreary politicians, two of the most charismatic of the last fifty years did not quite make it. David Grant describes the trajectory of Jim Anderton (1938-2018) who, despite the promise he showed in the 1970s, only became deputy prime minister and that for just three years from 1999 to 2002.

Winston Peters, from a rival political background but also who one left his home party, became DPM for almost five years. Throughout Grant’s book is the question why such talented politicians do not do better. (Peter Dunn is another who left his party and tried to start his own – repeatedly. He is likely to be remembered only for holding his seat for 33 years. Anderton did 24 years; Peters 36 years and he’s still counting. Tariana Turia also left Labour to form the Māori Party; her other memorable achievement was to found Whanau Ora. She spent 18 years in Parliament.)

Anderton, like Peters, grew up in deprived family circumstances (they also both went to teachers’ college and loved rugby). He proved to be a talented organiser, not only as an outstanding president of the Labour Party (1979-1984) but earlier in the Catholic Youth Movement, having converted to Catholicism in his mid-teens. It was there he honed his fierce commitment to social justice. (He did not adopt all Catholic tenets being pro-abortion and pro-divorce.)

Grant writes of him

“While being enmeshed in leftish ideology, and emotional with it since he was a very young man, he was also level-headed and pragmatic. He was never a cloth-cap socialist, as his right wing detractors, but a businessman with a social conscience. [I interpolate here, his father who adopted him was a storeman.] His early political inspiration came from Vatican II and Pope John XXIII’s belief in social justice, rather than from ideological collectivism. Politically, the most accurate description of him was as a social democrat.”

Anderton’s organising ability was a major contribution to Labour’s huge electoral success in 1984, and he also got himself elected to the red-ribbon Sydenham (later Wigram) seat in Christchurch. But he did not appreciate that whatever one’s record outside Parliament, a newbie is at the bottom of the pecking order in an institution notorious for its strange rituals, hierarchies and culture (something Gaurav Sharma has yet to learn). His lowly status was nicely symbolised by his office being located far from the Beehive and from the debating chamber in a wing called ‘Siberia’.

Anderton was faced with two challenges. First, while every MP may have a prime minister’s baton in his backpack, Jim’s baton rather stuck out. Second, already as party president he had clashed over economic policy with the ‘Rogernomes’ with their neoliberal policies, so very different from those of Labour traditions.

The clique of Rogernomes – David Lange, Geoffrey Palmer, Roger Douglas, Richard Prebble and David Caygill – commanded the heights of the new government. What were the rest of the caucus to do?

Some acquiesced. Anderton was greatly depressed that so many of those who, as party president, he had selected in 1981 and 1984, so easily surrendered. Some bided their time, perhaps working on non-economic policy areas where the Fourth Labour Government retains a creditable record. Most notable among the group were Helen Clark and Michael Cullen. Anderton chose to continue the public confrontation of his presidential years; trying to run Moscow from Siberia.

Could such an approach succeed? At this point a key character defect became evident. Anderton’s leadership style was to be out front, expecting the troops to follow. He made no attempt to build a coalition in caucus, merely assuming that because he was right, others would accept his leadership.

Because there was no security on a back door of Parliament Buildings, I saw a lot of Jim at this time, trying to explain to him that the traditional Labour economics which the party supported no longer worked; that Labour needed a modernising social democratic economics (a decade later Cullen would deliver one). A major weakness of the anti-Rogernomics coalition was that while they were excellent critics of Rogernomics, they had no modernising alternative.

I was also seeing a group of nine Labour MPs most of whom had been first elected in 1987, and who had been selected for their anti-Rogernomic ideals. Like Anderton in 1984 (and Sharma in 2022), they were struggling to come to terms with Parliament’s alien culture, particularly how to use it to oppose Rogernomics and its privatisation policies.

The obvious synergy was for Anderton and the nine to work together and absorb other dissidents. The group was reluctant to be led by Anderton; I recall raising this with Sonja Davies and her reply ‘Oh, Jim …’, as if that said enough. Anderton’s strategy could have been to offer to assist them without imposing upon them, but at the time he was as incapable of building a coalition as was Lange (who, by now deeply concerned about the direction of Rogernomics, had ignored the group’s offers to help).

Anderton became so isolated that he left the Labour caucus and formed NewLabour. Allow me the fantasy that had he stayed and built a coalition in caucus, Labour might have won the 1993 election with Anderton at number three or four in cabinet.

Instead, Anderton says that he never left Labour, the party left him. Other dissenters from Rogernomics joined him, including David Grant. Many were as strong-minded as he was, all saw themselves as more loyal to Labour’s traditions than the Rogernomes, even if there was little consensus as to what those traditions were. But Anderton’s NewLabour won only 5 percent of the vote in the 1990 general election and his Sydenham seat; he was a very conscientious local MP – in his younger days he had been a social worker.

Anderton had to broaden the coalition; this led to the formation of the Alliance Party which included the Democratic (Social Credit) Party, the Greens, the Liberal Party and Mana Motuhake. (Brian Tamaki take notice; alliance creation is damned difficult.) It won 18 percent of the vote but only two seats in the last Frontrunner election in 1993; in 1996 it won only 10 percent of the vote but 13 seats in the first MMP election. In 1997 the Greens left the coalition.

Every political party is seething with factions reflecting different ideologies, strategies and ambitions. One tension is between those who will compromise principles in order to get things done and those who would cleave to principles even at the price of never being in power. (Recently we saw similar ructions among the Greens, but the tension is found in all the parties.) The Alliance, combining five disparate parties and some very strong-minded people who were principled, ambitious or both, was even more chaotic. Anderton became more pragmatic about pursuing his principles in the long run, learning the art of coalition-building which would have been so valuable to him when in the Labour caucus. Even so, Grant reports that there were still occasions in which he led out front.

So in 1999 the Alliance was in a coalition with the Clark-led Labour Party to form a government with Anderton as deputy prime minister. His performance was very different from Sonja’s ‘Oh, Jim’. The enmities with Clark and Cullen from the Rogernomics period were forgotten as they reversed many of the neoliberal policies and introduced progressive and more socially sensitive alternatives.

This was a more mature, more compromising, less personally ambitious Jim Anderton. Both a dreadful personal tragedy and overcoming some health problems seem to have mellowed him. Perhaps he knew it was his last chance. Certainly, he had learned from his Alliance experience a lot about compromising.

Even so, the Alliance fragmented in 2002 while in government. Superficially, it was about policy towards Afghanistan but Grant reports the divisions were deeper and more fundamental, including those of personality and ambition as well as of policy and principle. Only Anderton and one supporter (Matt Robson) survived the election.

Anderton proved an able minister; a good minister has to lead from the front. Grant records a long list of Anderton’s policy achievements. Even so, some are missing. Here was one of the two I was involved with.

Reviewing alcohol taxation for the Alcohol Advisory Council, I identified an anomaly in the excise tax system which meant that a bottle of light spirits (21-percent-proof flavoured industrial alcohol) cost only an hour’s wages. A bottle was lethal enough for its drinker to kill themself; while I worked on the report, two young men did. Shortly after the results were submitted to the government, Anderton, as the minister with responsibility for drugs and alcohol, abolished the anomaly. Light spirits disappeared off the shelves. The head of ALAC, smiling, told me that was the fastest policy turn around they had ever experienced.

That was the Anderton the public servants who worked with him – the most informed judges of ministers – told me about. He would quickly grasp a policy issue, intelligently implementing it with political acumen; their complaint was that he did talk for far too long. Same thing when he became Minister of Agriculture and Forestry. He was a townie, but he is still remembered by the sector as one of the best ministers it had.

Grant’s final chapter asks who Jim Anderton was, concluding that he

… was a unique figure in New Zealand’s political history. His career traversed many changes, more than he was able to deal with. One could argue that he lost more than he won in terms of the highest political offices both nationally and locally. Yet after the capture of the Labour Party by an alien ideology, as he saw it, he bravely set out with like minds to preserve the doctrinal bastions on which the Labour Party has been founded and give the left a presence in an unforgiving climate. … While his most tangible success was the founding of Kiwbank, his legacy as a fighting humanitarian concerned primarily about the poor, marginalised and mentally ill will endure just as long.

The book – the third of Grant’s biographies of the ‘left’, following those on Norman Kirk and Ken Douglas – is not just about Jim Anderton but an account of the turmoil of the left. It is also a wider portrayal of the difficulties of operating in a party; the Green upheavals are but the most recent example. I can hear Jim saying, ‘I know all about it, son.’

What does the Budget mean for the health sector in the long term?

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Kaitiaki Nursing New Zealand May 25, 2022

It was surprising that Finance Minister Grant Robertson, in a pre-Budget speech, said that he thought the current health system was “incredibly inefficient”.

Of course there are some inefficiencies in health-care delivery, just as there are in private enterprise: mistakes happen, some treatments could have been managed better with hindsight, some are unnecessary (although they are more likely to happen when the patient pays the bill). But to say that health professionals are “incredibly” inefficient is not just rhetoric but insulting to them.

In the next sentence, the minister explains: ‘Over the past two decades, DHBs have learned to run annual deficit after annual deficit because they know the annual Budget process allows them to do this.’

What he is saying is that the “incredible inefficiency” is not “inefficient” at all (not in the normal meaning of the word anyway), but that the health system is underfunded. It does its best to meet the population’s health needs, but that requires it to spend more than the politicians allocate to it. So the DHBs have run deficits. Of course, the Minister of Finance cannot say that because the problem sheets home to politicians. (I know, I know — he is struggling with a myriad of financing demands but it would be better to explain the real problem, than try to shift the blame on to others.)

Uncomfortably, the analysis echoes that of of 30 years ago under the Richardson-Upton redisorganisation* of the health system. (In fairness, Grant Robertson was just 20 then, and such debates probably passed him by. Even so, it reminds us that the political system can be like the Bourbons, who forgot nothing and learned nothing.)

The 1990s upheaval was based on the premise that the public health system was highly (‘incredibly’?) inefficient, which could be remedied by imposing over it a new set of managers who might know nothing about health (one confused intensive care units with post-operative care units). It was claimed that their managerial skills – in retrospect they often seemed badly lacking – would reap substantial productivity gains. The often quoted promise was an improvement of up to 25 per cent, a claim described later by the first Minister of Crown Health Enterprises as a nonsense. Even so, Ruth Richardson, the then Minister of Finance, cut health funding before the redisorganisation started. Consequently, New Zealanders died earlier than was medically necessary.

So it was with apprehension that those with memories approached the health provisions in this Budget. Apparently the Bourbons lived on and the current health system was to be redisorganised to make incredible efficiency gains (‘incredible’ in the sense of ‘not credible’).

In fact the Budget increased funding to the public health sector; but the increase is not as dramatic as the minister claimed. Excluding COVID-19 funding, the increase for next year (ending June 2023) is 9.0 per cent, a little higher than the increases of the preceding three years of 8.9 per cent, 8.2 per cent and 7.8 per cent. Part of the increases have been about increasing remuneration rates for staff, but the volume of services seems to have increased too. In contrast, under National the increases were largely just keeping up with population pressures and costs. Increases above that are to be welcomed – even 0.1 per cent is an extra $25 million a year (or, as the Government is wont to count, $100 million over four years).

Before discussing where some of this money is to be spent, we need to explore how the redisorganisation fits in, since the secondary care system is where the bulk of the money goes and where the increases are going.

The centralisation of secondary health care (hospitals) has been a trend for the last 80 years since the first Labour government took over responsibility for it in 1938. Health New Zealand (HNZ) is the latest stage. Although we are not exactly sure what that means, it does involve a different funding regime.

In the early 1980s, central government funding of the (then) hospital boards was switched from an ad hoc system based largely on historical patterns to a ‘population-based’ formula. Before then, the system had favoured southern New Zealand and relatively underfunded population-booming Auckland.

The latest version of the formula, which includes factors such as the age distribution and the degree of deprivation as well as population, was introduced in the early 2000s. It was better than what had gone before, but it hasn’t worked and the consequential financial discipline has steadily become more easily evaded.

Rather than refine the population-based formula, the task of allocating the funds is charged to HNZ who will, no doubt, use a formula but will make ad hoc adjustments for its deficiencies. We can only guess how this will be done, but one consequence of the new system is that the details are likely to be even more opaque to the public since all the appointments to the system are to be made by the centre. I shan’t be surprised if at first the smarter city and district councils, and eventually all of them, set up units to monitor whether their regions are getting a ‘fair’ share of the funding.

I shall be astonished if, overall, Health NZ operates in surplus. A public health system functions by suppressing demand (in a private one the ability to pay does the suppression). Meanwhile the professional ethics of health-care workers requires them to respond to need, despite any financial constraints.

The Budget forecasts have the non-COVID health spend largely stagnating after next year. However there is a provision for additional new operating expenditure across the entire public service ($5 billion next year, rising thereafter); you can be sure that a goodly chunk of it will go into health spending.

The Budget-associated document, Wellbeing Budget 2022: A Secure Future, itemises about 40 new health programs — for new treatment initiatives, new and extended services, for local developments, for ethnic needs and for administration. I focus here on the professional development one.

The late George Salmond was concerned about the development of the health labour force even before he became director general of health in the 1980s. It is a bit of a no-brainer really, given the years required to train health professionals and the extent of their migration. In principle, the Ministry of Business Industry and Employment has responsibility for labour market development, but the task has been neglected. I suspect there is a bit of neoliberalism here – the belief that the market will fix the supply problem by itself.

One hopes that Health NZ, the main employer of our health professionals, will set up its own health labour force unit, but that will take time. In the interim, the 2022 Budget has an initiative to provide funding for health workforce training and development. There are two components:

  • $37 million over four years to cover about 1500 more training places for primary care work, including nursing, physiotherapy, pharmacists and optical services and 1000 places over four years for additional workforce (i.e. about $3900 a place a year);
  • $39 million over four years for hauora Māori workforce development, to cover about 1000 workforce training places and 800 workforce places, targeted to increase Māori working in prioritised areas of most need (i.e. about $5400 a place a year).

To what extent this $76 million addresses the serious staffing shortages can be debated. Until we have workforce development assessment, we shall not know, nor will we really know much about the programmes to address them. Sadly, it is going to take time; patients are going to suffer, as will the stressed staff serving them.

(* I avoid the term ‘reform’ because it suggests things will improve. The term ‘redisorganisation’ was proposed by the eminent health economist, Alan Maynard, after quoting Petronius Arbiter, from the novel Satyricon (about 60CE): ‘I was to learn later in life that we tend to meet any new situation by reorganizing, and what a wonderful method it can be for creating the illusion of progress while actually producing confusion, inefficiency, and demoralization.’)

David Ian Pool: The Father of Aotearoa New Zealand Demography: (22 November 1936 – 28 April 2022)

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Waikato Times May 21 2022

The University of Waikato made an inspired choice when it appointed Ian Pool to a chair in sociology in 1978. Strictly, he was not a sociologist. His masters degree had been in geography at the Auckland University College; his 1964 PhD in Demography was at the Australian National University under its Professor of Demography, New Zealander Mick Borrie. (While in Auckland he had worked with Bob Chapman, providing the quantitative input into the project on the evolving political-social structure of New Zealand.)

The decision meant that Waikato University is New Zealand’s premier academic centre for population studies. The Population Studies Centre which Ian founded evolved into the National Institute of Demographic and Economic Analysis (NIDEA), now called Te Ngira: Institute for Population Research.

Last year the university celebrated its forty years as a centre of demographic teaching and research with Ian rightly at the centre of a conference attended by a galaxy of his students, many of whom are now senior members of the demography profession throughout the world.

After Canberra, Ian went to work in at universities in Ghana, Canada and the United States, and also for a number of international agencies, with whom he continued to work throughout his professional life. He became an expert on population and demography especially in Africa – he was fluent in French. In his later years he extended such studies to other developing countries and was an invited lecturer at universities in Asia, Australia, Britain, Europe, Asia and North America.

However, his greatest scholarly contribution was to New Zealand population studies. It began with his doctorate which was the first significant analysis of Māori population changes using contemporary demographic techniques. The thesis was subsequently published, and then revised and updated as Te Iwi Māori: A New Zealand Population Past, Present and Future in 1991. This analysis of the Māori population was extended in Colonisation and Development in New Zealand between 1769 and 1900: the Seeds of Rangiatea.

His research on all aspects of New Zealand population was informed by his overseas experience but was astutely adapted to local circumstances. After all, the population experiences of Māori and non-Māori (in all their diversities) are quite different while sharing universal elements. His work placed New Zealand in a broader international context, for there was always an international dimension in his work. In the mid-1990s, Ian led a team of colleagues and students in New Zealand’s first major survey of fertility and reproductive behaviour, which was a part of an international series of surveys in ‘European’ countries. The result was The New Zealand Family from 1840: A Demographic History, written with his colleague Arunachalam Dharmalingam and with his wife Janet Sceats, also a demographer. They have two children, Felicity and Jonathan, and four mokupana.

Demography is a foundational part of the social sciences interacting with its other disciplines. It is no surprise that Ian did too, notably with the health sector, often in joint work with Janet. There is a lot of sociology in The New Zealand Family from 1840. Population has an important influence on the economy; Ian and his research played a crucial role in this writer’s economic history, Not in Narrow Seas. His legacy includes a manuscript completed just before his death which tells the story of the peopling and development of Aotearoa New Zealand from 1769 to 2020. It is being prepared for publication by his wife and former colleagues.

Over the years he accumulated numerous awards and accolades, including being elected as a Fellow of the New Zealand Royal Society in 1994, receiving a James Cook Fellowship from the RSNZ in 2004 and its Te Rangi Hiroa medal in 2009. He was made a Life Member of the Population Association of New Zealand in 2007 and a 2011 special issue of the New Zealand Population Review was a festschrift to him. After formally retiring as Professor of Demography in 2009, he was made an Emeritus Professor of the University of Waikato; he continued to work after retirement as long as his health would let him. In 2013 he was made a Companion of the New Zealand Order of Merit (CNZM) for services to demography. Ian participated vigorously in public life, especially on population-related subjects.

Māori, with whom he worked, liken the death of a great person to the falling of a totara. The bush below, which the tree has nurtured, grateful and inspired by the rangatira, is left uncovered. That well summarises the contribution of Ian Pool, the Father of Aotearoa New Zealand Demography.

Dick Bedford, Elizabeth Caffin, Len Cook, Geoff Hayes, Natalie Jackson, Tahu Kukutai and Janet Sceats assisted with the preparation of this obituary.

McCarthy, Woodhouse and The Proposed Redundancy Social Insurance Scheme

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This is adapted from a section of book, ‘In Open Seas’, which I am writing. I have published this extract because there has been some ahistoric claims about the characteristics of New Zealand’s public income support system.

The 1972 Royal Commission on Social Security (the ‘McCarthy Commission’) pointed out that there was a case for extending the accident compensation scheme to those with sickness. Accident compensation had been proposed by the 1966 Royal Commission on Accident Compensation (the ‘Woodhouse Commission’) and was being implemented just as the McCarthy Commission on social security was published. As a result, New Zealand has two public income-support systems which do not interface well.

They come from two different traditions. The ‘Woodhouse’ system goes back to Bismarck who introduced to Germany in 1889 an earnings-related income-support scheme for when there was need, based on the individual’s contributions. It was introduced into New Zealand in the 1901 Workers Compensation Act and is the principle underpinning Accident Compensation and Kiwi Saver.

The second tradition, the ‘McCarthy’ system, is a non-contributor entitlement funded from general taxation which is universal for those who belong to the appropriate category of need. It began in New Zealand in 1898 with the Old Age Pension. There have been various extensions, most notably by the 1938 Social Security Act. (It applies also, although imperfectly, elsewhere, most notably in public education and health.)

(There is a third part of our public system which provides grudging relief to the ‘deserving’ poor who are not covered by the first two. This goes back to the English Poor Laws of the late sixteenth century. Our nineteenth-century British ancestors came out here to escape them but they followed. The McCarthy system was developed to avoid such ‘charitable aid’.)

The two systems do not always interface well. For instance, an injury from an accident results in compensation from ACC (Woodhouse); the same injury from sickness gets considerably less support from social security (McCarthy). However, the interface between Kiwisaver (Woodhouse) and New Zealand Superannuation (McCarthy) does better with the first sitting on top of the second. This might be called the ‘(Henry) Lang’ solution because the Secretary of the Treasury proposed it for retirement support in 1974, synthesising the two approaches.

Redundancy and unemployment support is even more shambolic. The worker might be entitled to the unemployment benefit (McCarthy) and there may be some earnings-related lump sum payments from the employer, which is a kind of Woodhouse scheme.

With the exception of Kiwisaver, the two schemes have co-existed for half a century virtually unchanged – the clumsy interface unaddressed.

It is now being partially addressed, with the government committed to introducing a Social Unemployment Insurance scheme. It is likely to have two main components. First, it would provide income protection for those who become redundant; second, it could provide a constructive path for redeployment.

Essentially unemployment insurance is income smoothing so that the redundant do not suffer an immediate and possibly catastrophic income collapse. Many workers have fixed commitments – like housing outlays – that cannot be changed the day after they are laid off. As far as a worker is concerned, the income smoothing from the new scheme will give her or him time to find a new job and to adjust to new circumstances. Unemployment insurance was not proposed by the McCarthy Commission which did not conceive there would be significant unemployment. Because it supported the introduction of a Woodhouse (contributory earnings-related scheme for short-term illness, there can be little doubt that had it thought unemployment a problem it would have also supported a contributory earnings-related unemployment (insurance) scheme.

However, there is a critical difference between whatever is proposed for the redundant and ACC, which pays a long-term benefit where the injury is permanent. Unemployment from redundancy is short term, so the coverage is short term – perhaps for six months.

Thus the proposed redundancy scheme is an element of the long standing Woodhouse approach which goes back to 1901 in New Zealand and earlier in Europe. Whether it will interface well with the existing McCarthy and private arrangements is yet to be seen. It is well to remember how badly the interface can be by the example of the superannuation scheme the Treasury promoted in 1998.

(I am attracted to a Lang-type scheme – like our retirement provision– in which there would be a base-tier entitlement of flat-rate social security benefit near the current rate of 30 percent of the median wage, say, and a contribution-based second tier which would be equal to 50 percent of recent earnings. Somebody on the median wage would get 80 percent of their earnings up to a maximum cap, just as they do for ACC.)

I have publicly published more on the above at

            ‘A Proposal for an Earnings-Related Redundancy Insurance Protection’

and

            ‘Unemployment Insurance’.

Cancer of the Larynx: One Patient’s Journey

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Prologue

This arises from an invitation by Head and Neck Cancer Support Aotearoa to set down my recent experiences. A writer always asks, who am I writing for? It would be pointless to write for those who have already had treatment; most will have had far more rugged experiences than I had. So I am writing for those who are beginning the journey and their support groups. I hope you are as lucky as I have been. If you are not, I hope this helps you prepare for some of the waypoints on your journey. Best of luck.

It also occurred to me that I might be helpful for people who are training to work in the area. Since the age of twelve my ambition has been to be a teacher. I took great pleasure in signing consents that trainees could attend my treatments and welcoming them when I met them. Even though I was the subject, I felt I was still contributing to the education effort.

There is a third group I am writing for. It is to say thankyou to those who were involved in my treatment journey. There would have been over fifty professionals involved, plus a network of friends who provided additional support. I didn’t catch all your names so I wont name anyone. Because I usually met you wearing masks, I am unlikely to recognise you on the street. Forgive me for not saying thankyou in person then.

Beginnings

It was probably around March 2021 that my voice began to deteriorate, becoming more croaky. I thought it was nodules and my main worry was that my friends had increasing difficulty hearing me; they make a significant contribution to the profitability of the hearing-aids industry.

When I had my annual checkup with my GP in July, he was more alert to other possibilities, and immediately recommended my seeing an ENT specialist (at which point I learned they called themselves ‘otolaryngologists’ – gee whiz, I have enough trouble spelling ENT).

An important aside: I have a really good GP. He was with me all the way; I kept him informed electronically and he gave supportive advice. I was so lucky. The family pharmacy of Team Easton also gave great support.

It turned out the local DHB (Capital Coast, but I call them ‘Wellington’) was understaffed in the ENT area so I had to go private for the consultation. However, I could not get a booking for four months – 16 November; I’ll come back to that date. (I have been told that a couple of the ENT specialists had recently retired.) My GP, much more concerned than I was, suggested that I go outside Wellington and identified a couple of centres with spare ENT capacity.

As it happened, I was visiting Nelson and booked in with one of their otolaryngologists. The consultation was Tuesday 3 August, just over a fortnight after seeing my GP. The investigation involved using an endoscope – a thin, flexible tube with a tiny camera and a light – which goes up a nostril and down into the throat and projects what it sees on a screen. (It was done in his office with a light local anaesthetic.) It identified a ‘papilloma’ on the larynx. He contacted Wellington hospital and recommended a biopsy as soon as possible. (For the uninitiated, as I was, a papilloma is a tumor – it was sometimes referred to as a ‘wart’ – and the larynx is the voicebox. I had to consult Dr Google quite a bit and I had a well-retired friend who had been an oncologist and still knows more than I ever shall.) A Wellington ENT registrar saw me on the Thursday (5 August). Much the same thing as in Nelson but with moving pictures on the screen.

The immediate response was that I was to have a biopsy under general anaesthetic on Monday 23 August – vroom, vroom. As it happened, the country went into lockdown over Covid Delta and the anaesthetic pre-assessment was done by phone on the Friday. The surgery was cancelled and then reinstated for Tuesday 24. Whew!

Surgery

I turned up at 8.30 on the Tuesday morning with the promise of being the first, to be followed by major surgery on someone else immediately after. The hospital suddenly decided we all had to be Covid tested and by the time that was done, the major surgery was under way so I spent the morning near naked in a side room reading a book. (My surgeon also seemed a bit surprised by the demand.)

(Covid forms a background to all the events I am reporting, but it is not necessary to detail it. I had the good fortune that measures dealing with it never got so intense that my support people could not come with me. They were great, particularly for going over things after to make sure my understandings were correct; I really should have taken more notes. The medical professionals seemed pleased that they were there.)

Then wheeled into the operating theatre. I don’t remember much except everyone wore masks and that the senior staff were distinguished by different kerchiefs covering their hair. I have never seen that in a TV show, but a jolly good idea.

I came out of the anaesthetic in the recovery room with a large Covid notice across from me which said ‘Be Kind’; hardly necessary for the staff were always that. I, of course, wanted to go home immediately, but they knew what they were doing and I waited around for a couple of hours; it took me a little time before I could concentrate enough to read. (Because I had been fasting since the previous evening, I was hungry and the hospital sandwiches even tasted all right.) Incidentally, all my things were next to me, and I learned that to pack them in future so what I really wanted – book and phone – were readily accessible.

Just before I was due to go, the surgeon popped her head around the curtain and asked me how it was. She said she removed a bit of the papilloma and it would go to a biopsy. She went on to say that she was a bit puzzled. I asked whether it was cancer – the first time I had articulated the possibility, even to myself. Her reply was a cancer would be very ‘unusual’. It was a good economical reply and I went home comfortable; ‘what, me worry?’ I don’t recall a major change in my voice after the biopsy.

I was to see the surgeon for a report back from the pathologists on the biopsy on Wednesday 7 September. At 8.30 the Tuesday morning before, I was rung and told I had to have an urgent full-body CAT scan (at a private hospital but paid for publicly).

Now I may be a bit of a medical naif but I knew a full body scan meant cancer and they were looking to see whether it had gone metastatic, that is into other parts of the body. Glug!

Fortunately, my GP sent me the scan report at 2.30 that afternoon and the good news was there was no evidence of metastasis, so I had only six hours to really worry. I was told later that the blood vessels which would have conveyed the cancer outriders are not very close to the larynx but, of course, had treatment been left they could have got into them and the rest of the body. Again, I was lucky.

That meant I would not need chemotherapy. I was so relieved, I did not think much about the cancer in situ and slept well that night. The following day, the Wednesday, I saw the surgeon.

She explained that I had a slow-growing carcinoma-sarcoma of the larynx, which was rare. In fact, she had never come across an instance in her career (and she was a very senior and experienced surgeon). I knew that meant she would have also looked up the international medical literature and found little; my subsequent Google search did not find much either. She then told me that a new surgeon had just arrived from England and she would consult him.

I had an MRI scan on Wednesday 15 September, but they did not find anything – good news!

The following day (16 September) I had a case conference with the two surgeons. I think the meeting was immediately after a regularly MDM (multi-disciplinary meeting) so it is likely my case had been discussed by a lot of doctors.

The second surgeon came from one of the few centres in England which had experience of my condition – it was a very rare one. (I saw somewhere it is one in ten million; does that mean I am only half a New Zealander?) My first surgeon explained that the new one had arrived so recently in New Zealand that, despite 20-odd years of experience, he was not yet New Zealand registered and would have to be ‘supervised’. So I had for the operation two senior surgeons, two anaesthetists and at least two registrars. I hope it was a good educational experience for some of them. I wouldn’t know, I was out to it.

Just before the actual surgery on the Tuesday 21 September (they were in a hurry, weren’t they?), the English surgeon talked to me about what was happening. I remember the surgeon reading the riot act; if things went wrong I could lose my entire voice box; we joked about Stephen Hawkins. He mentioned that he had talked to his mentor – the person who trained him – at the Royal Marsden in London, which is THE cancer centre of England. They were taking this all very seriously. (The anaesthetist also came into see me. Earlier I had had a blood test for him to check my innards; throughout the process there was regular assessing of my blood pressure, temperature and weight.)

Because it was a bigger operation, they required me to stay in recovery overnight; read another book.

I don’t know how much they took out, but I could hardly speak for a few days. I wrote down what I wanted to say, a sort of reverse of what happened to deaf Beethoven who people spoke to by writing. However, my conversation books will not be published; they are near incomprehensible. Fortunately my ability to speak began to return.

When they do this sort of operation, they take some samples from the margins of where they cut and the pathologists look to see that there is no cancer there. There was not. However, at the post-op review the English surgeon said a further biopsy had to be taken; he had warned me earlier. As best as I understand it, there was an ‘awkward corner’ they wanted to check. Apparently the cancer had not only got into the right side of the larynx but also into the ‘anterior commissure’ which ties the two sides together. I think the six-week delay was because they wanted the main operation to heal sufficiently.

The day-surgery, on 1 November, was much like the first biopsy (but this time the sole surgeon was my English one; his registration had come through). The pathology lab confirmed there was no evidence of any remaining cancer.

So all the surgery was over a fortnight before my initial, and now cancelled, booking to see the Wellington otolaryngologist on 16 November. Had we gone down this three-plus month slower road, the cancer may have got across to the left side of the larynx or into the blood stream. I’ll have more to say about this later.

Radiotherapy

However, there could be residual cancer smaller than the surgeon’s ‘knife’ – it is actually laser surgery these days – could locate. So I was shifted across to the care of a radiation oncologist. It was put to me that the surgeons pick up the rubbish and the radiation oncologists sweep the floor after them.

The basic idea is to pound any residual cancer cells to death with radiation. Because those cells are tiny, the radiation needs to have a very narrow bandwidth. That requires it to be high energy. A linear accelerator is used to get the radiation up to the required level. (The most famous accelerator is at the Large Hadron Collider near Geneva, which is very high energy because they are after very small particles.) Wellington Hospital has three (we did not see any Higgs bosons).

Apparently, the six weeks of therapeutic radiation exceeded the normal dose of radiation most people experience in a lifetime (providing they don’t get in the way of the Large Hadron Collider).

So off to see the radiation oncologist, who ordered six weeks of treatment – 28 sessions because it was across Christmas and two weekdays were public holidays. He also said that he had not met anything like this particular case before. I do like experts, like him and the two surgeons, who are so good they can be honest about the limitations of their knowledge. He also mentioned there was a possibility that the treatment could induce another cancer by upsetting a healthy cell. The chances of that were about 1 percent by the age of 100; I am 78; I said I would take the risk.

Before the radiotherapy I had to have a ‘mask’ made for me. The term is slightly misleading because it is a light plastic frame from the top of the head down to the shoulders with a network with plenty of holes for breathing and seeing. Its purpose is to hold the throat in exactly the same spot for each treatment. Radiotherapy is precision bombing, targeting the same very small area, near the Adam’s apple in my case, 28 times. (Chemotherapy is carpet bombing.) They gave me the mask as a souvenir when the treatment finished. It is mounted in my office.

The bombing only occurs for a short time. First, they check they have the target exactly right, rotate the gun to the right at about 2 o’clock for one dose, to the left at 10 o’clock for a second. I actually spent more time waiting my turn, observing others also waiting who were in much more dire straits than I was.

In fact it is all very routine except for the first session. They asked me what music I wanted to listen to. ‘Beethoven!’ But I found my beloved’s Sturm and Drang to strong and switched over to the sweet sunshine of Mozart. I’ll never hear him again without remembrance of the bombing runs.

In the first session I found the mask a bit tight. Put up hand. Loosen it by a couple of millimetres and the session went fine. The following morning I woke up with a kind of post-traumatic syndrome of the memory of the cramping – I am mildly claustrophobic. I felt awful and feared I would not be able to last the course. So I turned up on the second day expecting this would be the last if I made even that one. In fact, I had no difficulties. (One trick was to come in a black singlet to free up my shoulders and it was easier to manage the undressing. I did wear a jacket in public; I did not want everyone thinking that Fred Dagg was loose in the hospital.)

So it became a six-week routine. Wait. Go in. Cheerful welcome. Music on. Identification questions. Details up there on the computing screen. Lie on bed. Mask locked on. Radiologists leave the room (to minimise their exposure to the radiation). Focus, zap, zap. Come back. Take the mask off and within five minutes you are free till the next day. Once a week they weigh you. The radiologists were lovely. I’d be proud if any one of them was my grandchild.

This was a very high-tech operation, except when you got up from lying on the bed you use a rope to pull yourself forward (after cleaning your hands). Old ways can be best but, golly, an old hand told me what radiotherapy was like fifty years earlier. Glad the cancer waited.

The Cancer Society provided a daily driver who picked me up from home, delivered me to the hospital and the reverse afterwards. Thankyou. During the two-week Christmas break when the radiotherapy continued, friends who did the same could use the Society’s now empty car parks. (The Society, which also provided some useful non-technical pamphlets, is perhaps the best example of all the voluntary activity around the hospital. Would it have been as widespread if the neoliberals had had their way in the 1990s and turned hospitals into a profit-seeking businesses?)

The radiation oncologist (or a registrar when he was on holiday) saw me once a week to check I was OK. There were three auxiliaries for support: the nurse who was also available at the waiting station (there was always a registrar available too but I never had to use that service); the dietitian – to lose weight while you are under treatment is a signal you are not thriving; and the speech therapist, who made an even bigger contribution after the treatment, helping the voice to recover. One of her exercises was blowing through a straw into a milkshake – childish fun.

After about two weeks of radiotherapy they asked me to go onto eight tabs of Paracetamol a day (two every six hours). The effect was miraculous for I reverted to how I had felt before the radiotherapy began. (I was put on other drugs at various stages. I’ve not detailed them because different doctors may prescribe differently. I’ve mentioned Paracetamol because used properly it is such a safe pharmaceutical and yet my response was rather remarkable in the circumstances.)

However the bombing slowly wore me down. Apparently there are few sensory nerves in the voicebox to tell what is going on there, so I was not particularly aware of the frying of the larynx. But it was hard to remain cheerful, I was getting increasingly tired and sleeping through the day; I was writing less.

Aftermath

The precision bombing of the finest airforce will still cause collateral damage. Mine included sunburn around the neck, a loss of appetite, a loss of taste and a falloff of the strength of the voice till it became a whisper (unless all those hearing aids simultaneously failed).

Once the radiotherapy finished, there was a recovery, although not immediately. The sunburn worsened for about four days but it had almost gone a fortnight after. It is likely that some lower neck areas will be permanently bald and some of the skin there still feels baby-like. (I would not recommend linear accelerators for those with cosmetic ambitions.)

Two months after, my appetite was still down, which may be no bad thing for somebody with my BMI. I’ve noticed I am consuming a lot more milk-based products – may go with the baby-skin.

The taste has not fully recovered either. A particular disappointment is that I have not enjoyed a glass of wine since before Christmas. It still tastes like muddy water. A friend pointed out that while it is a miracle to change water into wine, I have performed the opposite. (If this continues much longer, a couple of vineyards may go bankrupt.)

The whispering voice was a great frustration. But two months on it has returned to where it was before the radiotherapy, so my friends tell me – you never hear your own voice properly. I take it that means the larynx is no longer fried.

However, chunks have been taken out of the cartilage. I am told that it may take until the end of the year for it to strengthen to its full capacity, but not necessarily to the level it was. One surgeon told me I would never be able to sing opera again (again? hadn’t in the past). I asked her about doing the Humming Chorus.

So nine months on after my GP went on alert, I am discharged and back to where I was. Except they are ‘confident’ they have got all the cancer. I asked whether the prognosis was ‘good’. They said ‘very good’. There will be ongoing monitoring – initially every three months.

This was quite a learning experience for me. Looking through my notes I observe how on occasions I got things wrong. Never seriously; just that sometimes I did not understand where the journey was going or how long it would take to get anywhere. Hope this helps others.

Coda

Thus far you have been with the writer and the teacher. Another of my professional dimensions is that I have long been involved in public policy including health economics. Here are a couple of lessons which the journey highlighted.

Those who most need Head and Neck Cancer Support Aotearoa have had a rougher journey than mine. But, like so much of New Zealand’s responses, it is providing ambulances at the foot of the cliff. They are needed – sometimes desperately – but we rarely lift our eyes to see the need for a fence at the top.

Dr Google (actually the Australian Cancer Society) tells us that risk factors for throat cancers include:

            smoking tobacco;

            excessive alcohol consumption;

            Epstein-Barr virus (EBV);

            Human Papillomavirus (HPV);

            poor diet;

            and a family history of cancer.

I have long worked in the areas of tobacco elimination, where we have made a lot of progress and alcohol moderation, which remains a problem among some groups. I know little about the Epstein-Barr virus which appears to be a kind of herpes. It is widespread and Dr Google says ‘you can help protect yourself by not kissing or sharing drinks, food, or personal items, like toothbrushes, with people who have EBV infection’. Cor! They are promising there will be a vaccine based on the mRNA approach which created the Covid vaccines, but don’t hold you breath; stick to your own toothbrush.

HPV can cause genital warts and warts in the throat as well as cervical cancer and other cancers of the genitals, head, neck, and throat. A HPV vaccine has recently become available. The evidence I have seen suggests big gains (reductions in the likelihood of cancer) from its use for both women and men.

The HPV vaccine rollout focuses on the young before they get it. There does not seem to be much public awareness and large sections of the target population have yet to be reached. We need to do better. If I have the mathematics right, the vaccination level is such that the virus wont get out of control if we confine ourselves to two-and-a-half sexual partners per lifetime.

But prevention is insufficient. There are other factors causing cancers. We do not know what caused mine – it may have been a stray cosmic ray having colliding with a cell. So we still need to think about early detection.

To repeat, I was lucky, because the health system got me early. Had I to wait those extra four months for the first private ENT consultancy or even longer for what the public system could provide, who knows where the cancer might have got to. Certainly, my treatment would have been a lot rougher.

I am tempted to propose that we set deadlines for how long one should be on a waiting list when there is a possibility of cancer. Exceed that time and there is an obligation for the public system to pay for a private consultancy. Apparently, the Irish have something like this already; they ship people around the EU to meet their deadlines. We used to have target deadlines for cancer and for various other illnesses but the DHBs failed to so often meet them, they were scrapped as meaningless.

Before you say such a policy may cost the earth – true – think about my case. Had the identification and treatment been delayed, the cost of the additional treatment may well have been horrendous both financially and personally.

Nor should we overlook my good luck to have an alert GP, to be visiting family in Nelson and to be able to afford the private consultation. There are many more vulnerable to cancer who have no such luck.

Sure, my particular condition is rare. It may become more common because of an aging population. The health system is already dealing with too many such conditions and not getting them early enough. The really good news from my experience is that when it fronts up, it does so superbly. Thankyou.

(This was also posted by Head and Neck Cancer Support Aotearoa.)

Jas McKenzie: Empirical Macroeconomist

This entry was posted in Macroeconomics & Money, Political Economy & History, Portraits on by .

Jasfest, 7 December 2021

I apologise for not presenting this short tribute to Jas. I have had a tumour removed from my larynx. The prognosis is good, but it will take some time for my voice to recover sufficiently to be able to make presentations.

I want to talk about Jas as a macroeconomist, but we – for I am very conscious of Jas looking over my shoulder – have a wider remit. Good macroeconomics is founded on good empirical analysis. Jas was a good empirical analyst.

It came from the thorough grounding that Jas got at Lincoln under Bryan Philpott; ag economists are generally into reality. When he shifted to Treasury, Jas was put on the land use desk. Alan Stuart, who took over the desk from Jas tells me that he developed detailed data sets. It impressed on Alan the absolute importance of sound data for policy formation.  

Shortly after Jas took over the desk, the New Zealand economy was hit by the 1966 wool price shock. That must have been quite an education. I have read some of the papers written at the time – not the Treasury ones. Economists were flailing around because the single commodity model which economists standard use does not work when there is a major change in the terms of trade – the relative price between products. Jas learnt his trade under fire.

His big opportunity in the Treasury came when Henry Lang asked him to come back from his teaching at Auckland to head what, I understand, was the first serious macroeconomic forecasting group. The story I was told – it was once standard Treasury myth – was that the junior Treasury officials in the macro-team had predicted a huge external deficit for the 1974/5 year, well over 10 percent of GNP, with the implication that Treasury would be involved in a major external borrowing program. As the forecast went up through the layers of the Treasury, each layer cut back the deficit by one fudge or another, each unaware that the layer below had already cut it back. By the time it got to the Treasury Secretary, New Zealand was predicted to run a small external surplus. In fact, the external deficit outturn proved to be well over 10 percent of GDP, just as the juniors had forecast.

We can guess that Henry was furious. He needed an able economist but also one who would not be bullied by those above. He went to Jas. Shrewd move, Henry.

Jas and I really got together when I became director of the NZIER in 1981 and he, now a deputy secretary, was the Treasury representative on my board. I think he liked the forecasting operation at the Institute. I was pouring what resources I could raise into research, which underpinned the forecasting exercise. After I left, I put the research together in Not In Stormy Seas.

Essentially the method, similar to the Treasury one at the time, was that each component of the income and expenditure sides of the national accounts was individually forecast. (We even tried to forecast the production side.) These were not mechanical autoregressive forecasts because the way that they were brought together made them structural ones. The components, although separately forecast, were interrelated and the relationships had to be made consistent.

Using my earlier example, anyone can fiddle the external deficit. But it is not just changing the numbers, say, for exports and imports. Pulling the import number down might impact on stocks, on the composition of consumption and investment and so on; somewhere else in the forecast accounts there would need to be a compensating change.

A major issue is the national savings balance. A reduction in the external deficit means that somewhere else in the economy there has been an increase in savings. Where?

So the macroeconomic team leadership needs to crosscheck these relationships. One becomes aware of what might be called the ‘sociology of forecasting’. The team usually has a slightly optimistic stance and they shift their forecasts in that direction. The crosschecks often expose them. You may find, for instance, that the household saving ratio has jumped to an  historic high, which almost certainly reflects an attempt to restrain the external deficit by implicitly assuming that consumers had voluntarily given up the imports that the forecast had suppressed.

So, leading a forecasting team a strong understanding of empirical realities – for, instance knowing the import composition of gross fixed capital formation which differs, not incidentally, by type – housing, plant, major construction works. It also requires a thorough understanding of macroeconomic theory at a much deeper level than Stage I aggregation and it requires a knowledge of the past. It also involves person skills. Jas had them all.

This is well illustrated by Jas’s involvement on the external Treasury forecasting panel in the 2000s which I was also on. Initially Jas was there as one of the Treasury officials, after having come back to work for them in the infantry – as he put it. When he retired he stayed on as one of the independent panel members.

The external panel arose following an embarrassing budget forecast  in the early 1990s. One purpose was to have an independent assessment of the forecast before publication, another might have been that if they made another embarrassing mistake, the officials could shift the blame a little onto the independent external panel.

The Treasury invited Victoria University to convene the panel. It consisted mainly of academics with macroeconomics – inadvertently demonstrating that there could be an enormous gap between teaching a subject and applying it. At one stage a senior academic had to have explained how GDP was constructed.

Jas really loved the job. He was one of those senior macro-forecasters crosschecking the numbers, but he was also aware that many of the younger Treasury officials had to be taught how to forecast – they certainly had not been taught it at university. I don’t recall him disagreeing with the forecasts so much as nudging them and exploring their implications.

Discussing the Treasury forecasting at that time belongs elsewhere. The forecast of the stock change was primitive, despite Jas reminding us that the inventory cycle was an integral part of the business cycle. We could never do a full savings balance because the panel was never presented with the public sector revenue flows. The forecasting seemed more mechanically autoregressive than in Jas’s day. Jas added a structural insight to the exercise.

Jas’s time on the panel ended when the panel convenor, who knew nothing about economics and even less about forecasting, decided to dispense with the experienced non-academics on the panel. Unfortunately it was just before the Global Financial Crisis so that there was no one left who had much historical memory.  History and structure – that is, theory informed by empirical analysis – need to be heavily drawn upon during a crisis.

In particular the more autoregressive, the more inertia in the forecasts or, as Jas said, the sociology of forecasting finds that forecasters under-predict both major expansions and major contractions. Thus the Treasury forecasts at the time of the GFC underestimated its severity (as did most other forecasts). I am not saying that had Jas been retained on the panel they would have strengthened their forecast contraction, but I am confident that he would have argued that more attention should have been given to the downside prediction (which would have been closer to the actual outcome), which would have sharpened the internal Treasury debate. (Some years later, a Treasury economist told me that had the Treasury had better forecasts at the time of the GFC, they would have given different advice to the incoming Key-English Government, adding that ‘they may not have taken it’. The implication was that had they been, economic management would have been less difficult in the middle years of the 2010s.)

This brief survey has focused on Jas as a macroeconomist. A rounder picture would have given much weight to his interests in international trade theory. However the theory is only marginally involved in empirical analysis (the quants look at future trade scenarios which are rarely subject to the test of comparisons with actual outturns).

Jas had developed his empirical skills in macroeconomic forecasting and (earlier) in agricultural economics. They were integral to his approach as an economist. I leave him with the last word. Whenever we were discussing – not at every lunch – the period which today we describe as the Rogernomics era he would say about the Treasury advocates, ‘I kept asking them for the evidence; they had none.’

Good and Faithful Servant: Jas McKenzie 1939-2020 is an obituary of Jas.

Review of Michael Cullen’s Autobiography

This entry was posted in History of Ideas, Methodology, Philosophy, Political Economy & History, Portraits on by .

New Zealand International Review

November/December 2021 Vol 46, No 6 p.26-7.

LABOUR SAVING: A Memoir by Michael Cullen (Allen and Unwin, Auckland, 432pp, $50)

In the 40 years since Muldoon’s reign, the predominant form of national political leadership has been a dual premiership in which, broadly, the prime minister manages the politics and the co-premier manages policy. The second is often, but not always, the minister of finance and may, or not, be the deputy prime minister. When the two are both able and working together they form a powerful partnership.

The prime minister may have particular policy interests. Jim Bolger was deeply involved in the Treaty settlement process. John Key’s were less obvious. Helen Clark’s included foreign policy, women’s issues and the arts, as well as, particularly at the beginning, maintaining a tight control over her ministers. The exception was Michael Cullen, with whom she had been a junior minister in the disintegrating fourth Labour government (1984–90).

How these partnerships function is hardly recorded. How often did they meet informally, telephone, write or email? Were there trusted emissaries? There are the odd insights. The David Lange–Roger Douglas breakdown told us a lot about when it does not work. We know Bolger and Bill Birch and their families regularly went tramping together. Otherwise there is a virtual silence. Even the autobiographies and biographies tell us more about marriage partnerships.

Alas Cullen’s Labour Saving is reticent too. The best that one can infer is that he and Clark had a very strong trusting partnership. There is no hint they ever disagreed, let alone how they worked it through. Otherwise the book is as invaluable, reflective and revealing as any (auto)biography we have had from a retired minister of finance.

It was written in difficult circumstances. In March 2020, learning he had small-cell lung cancer, which was to kill him seventeen months later at the age of 76, Cullen ceased the active public life he pursued after his retirement from Parliament in 2009. He then discovered he had nothing much to do, a lacuna compounded by the Covid lockdown which followed soon after. So the trained historian turned to writing an autobiography.

Unfortunately, he did not have easy access to his papers, which are in the Hocken Library. Not only did he have to rely on his memory and what was available on the web, he was also conscious that he had a limited time for the writing. That means there are some gaps, as well as lapses of memory. I wanted much more on his role in the restructuring of the

governance of the environment by the fourth Labour government — in opposition he had been Labour’s spokesman for the environment. It is a success which needs to be better recorded; one is also curious to know how much influence an able backbencher can have.

Subject to these limitations, the biography is revealing about Cullen’s personal life and health and the issues which Labour faced in opposition and government. It also reveals a much more agreeable person than was his razor-sharp public image.

At the centre of the book, as indicated by its title, is how Labour recovered from its neo-liberalism of the 1980s. He does not say this boastfully, but as one of the few economically literate members of caucus, Cullen played the key role.

It is there in his policies, but it is also in his appointments. He describes how as minister of finance he turned down a proposal for the new governor of the Reserve Bank because the candidate ‘made even Brash slightly moist’ and then similarly for a proposed secretary of the Treasury because he had been at the centre of the neo-liberal revolution. (Wellington watchers will know of numerous such incidents. It is, however, unusual for a politician to go so explicitly on record.)

Even more fundamentally, he devotes a couple of pages to setting out his political philosophy (his personal philosophy is hinted in various places throughout the book). He is a pragmatic, modernising social democrat with a strong commitment to sustainable development (and a ‘muddy Keynesian’). Later he describes his thirteen months as minister for Treaty settlements as one of the most satisfying things he did. He settled the massive and complicated Treelords Deal; after Parliament, he acted as a negotiator for some iwi.

It is rare for a politician to set out their political philosophy so explicitly. Jack Marshall did, and recently Chris Finlayson has, more briefly, in He Kupu Taurangi: Treaty Settlements and the Future of Aotearoa New Zealand. It is more usual for New Zealand politicians’ memoirs to fudge philosophy in platitudes.

Cullen implemented his social democratic ambitions, nicely illustrated by Kiwisaver, the achievement which was highlighted when his death was announced. It is certainly popular and more tangible for the New Zealand populace than social

democracy. I mentioned Cullen to a nurse of Asian ethnicity. She became effusive because her family had used their Kiwisaver funds to purchase their home. I said I had a small role in its development — and I mean ‘small’. She thanked me three times.

There is irony in the fuller story. In the 1970s Labour looked at European social democrats for policy directions, out of which came the earnings-related contributory New Zealand Superannuation Scheme of 1974 introduced by the third Labour government (1972–75); Muldoon repealed it in 1976. The chief driver was Roger Douglas (although it was the Central European social democrat Henry Lang who had the genius to add it on top of what is today called New Zealand Superannuation — the flat-rate, taxation-funded, universal retirement pension). Douglas never revived his scheme when he returned to office in the fourth Labour government. In his 1993 Unfinished Business he proposed instead a scheme reflecting neo-liberal values, which was thoroughly trashed in a nationwide 1998 referendum. Kiwisaver implemented the social democrat policy.

While Cullen deserves to be remembered for the scheme, it was not his greatest achievement. Labour was devastated by the neo-liberal coup of the 1980s. It struggled to recover itself; how was it to apply the principles upon which it was founded to a modern economy and society? More than anyone else, Cullen by deed and now by this book showed the way. The Ardern–Robertson government and the Labour movement must be deeply grateful.

FRIDAYS WITH JIM

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Conversations about our country with Jim Bolger: David Cohen (Massey University Press, Auckland, 287pp, $45.)

NZ International Review (September/October 2021) p.29-31

James Brendan Bolger presents a paradox. When he became prime minister, a Tom Scott cartoon presented him as a kind of Forrest Gump; in 2017 he outshone his other three panellists: Helen Clark, Geoffrey Palmer and Jenny Shipley. In 1990 and 1991 he presided over the most bitter attack on New Zealand’s welfare state; today he rejects neo-liberalism. He was in the Muldoon Cabinet which supported the 1981 Springbok Tour; among his proudest moments are working with a greatly admired Nelson Mandela. He left school at fifteen; for eighteen years he was chancellor of the University of Waikato.

Journalist David Cohen’s Friday conversations with Bolger — modelled on Mitch Albom’s Tuesdays with Morrie — offers some insights to the paradox, without entirely resolving it.

Part of the answer is that although Bolger was born in 1935 he grew up in a rural Taranaki, which the prosperity of the welfare state had not really yet reached. It was normal to leave school at fifteen, for a job (the family farm); after all, he had run a farm at twelve when the local farmer was away. Thus, he is a throwback to an earlier generation of politicians — before Muldoon’s one which was shaped by fighting in the war. Before that — the Savage–Fraser generation — politicians’ apprenticeships were in the school of hard knocks. Many worked their way up through a union as did Bolger, except his was Federated Farmers. Like some of his ‘uneducated’ predecessors, Peter Fraser, Norman Kirk and Keith Holyoake, he is an omnivorous reader.

In the 1990s, there was a sort of snobbery towards Gump — recall the description of him as ‘Spud’ — by those who had grown up in more affluent times and been lucky enough to have tertiary education and OE — Bolger got his in Washington when he was 63.

Being prime minister is a learning experience, although this is rarely explored in retrospective biographies — not in Cohen’s book. One arrives in office under-experienced — being leader of the Opposition is near irrelevant preparation — surrounded by public servants who initially prop one up and, if one has the character, grows into the job. Bolger did. That may explain Bolger’s role in his National government’s assault on the welfare state in 1990–91. Apparently, he was overseas when Cabinet made the key decisions. I have not seen explored his feelings about the ‘redesign of the welfare state’ — it would require a tougher interviewer than Cohen — but there are a number of indications that he would not have been so brutal.

There is a parallel here with David Lange who was gazumped by Roger Douglas. The difference is that Bolger wound Ruth Richardson back. Perhaps having Bill Birch as his lieutenant (and tramping partner) helped — although neither this book nor the recent biography Bill Birch: Minister of Everything by Brad Tattersfield discusses their relationship. (Allow me a frustration to observe that such biographies rarely report how the politician connects with close public servants and intimate political colleagues, yet that is often key to understanding their performance. But no matter how good those around are, the clay they are working with matters.)

Cohen’s book is tantalising when it draws attention to the religious dimension of Bolger’s life. I cannot recall another account of a politician which pays so much attention to the issue. The book records Bolger as a regular churchgoer — at the time of the mosque massacres, he was in Muslim Baku but arranged to be taken to a local Catholic church. The book also touches on the canard that a Catholic prime minister might be beholden to Rome. But it fails to mention that Bolger has been deeply influence by Catholic social justice philosophy, which is founded on the 1891 papal encyclical Rerum Novarum: The Condition of Workers, which supported private property, but not uncritically, and the ‘just wage’. (Allow another paradox: Ruth Richardson was brought up a Catholic, but the encyclical seems to have had less impact on her thinking.)

Of course, the environment he grew up in was critical. There were more Maori at his school than Pakeha and he has shown a particular interest in race relations, as well as leading the Treaty Settlement process. Yet there is a paradox here. In 1991 Rerum Novarum was celebrated by Centesimus Annus: The Centenary of Rerum Novarum. It was released about about the same time as the Employment Contracts Act (ECA) and provides a critique of how ‘anti-Catholic’ the legislation was. (The Catholic bishops thought so too, and circulated a pastoral letter at the time.) What Bolger really thinks of the ECA is not on record. He had been minister of labour under Muldoon and his bête noire was the freezing worker unions — a common position for a farmer. Militant unions have not always contributed to the sustainability of New Zealand’s union movement.

Bolger has strong views on racial issues, tolerance generally and the environment (climate change). But does one detect a shift in his interests towards international affairs? I recall little evidence of such an interest before he became premier, although he mentions that he followed events off shore as a child on the farm.

Every prime minister has to get involved, but Bolger’s interest has continued in retirement. Sometimes one often gets the impression of politicians’ set pieces being mechanical exercises based on anonymous public servants’ notes. Once they separate, the politician descends into platitudes. Bolger had, however, maintained his interest — including saying to Cohen that on some issues he has not yet reached a conclusion. The chapters on Armageddon (the nuclear question) and Washington are additions to the foreign affairs literature.

The paradox is us — we undervalued Bolger because he was not one of us. Ironically, retired he may be the most progressive premier since Norman Kirk. (Across the board — Helen Clark is ahead on women’s issues and international affairs. Bolger jokes that perhaps he should have been a Labour prime minister and Clark, who also came from a farm, a National one.)

Therein lies a deeper paradox. It is said that New Zealand history is written about the land of the long pink cloud. I struggled with the image while writing my Not in Narrow Seas: The Economic History of Aotearoa New Zealand. There is a stronger case that New Zealand is a green land in a blue sea. Among its premiers is a tradition of progressive farmers of a rightish disposition: Harry Atkinson, Bill Massey (probably, we lack a good biography), Gordon Coates and Keith Holyoake. James Brendan Bolger is one of them.

IN OPEN SEAS: Part I: On the Seashore: (1943-1970)

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Brian Easton (Journalist) Interviews Brian Easton (Economist)

Published in Asymmetric Information, Issue 71 August 2021.

You grew up in Christchurch?

In Somerfield, in the south of the city, in a state house the family bought. Dad was an electrician who in the middle of his life became a psychopaedic nurse. Mum was a clerical worker who became a librarian; they named the Hilmorton School library after her. But I went to Christchurch Boys’ High and was in an exceptionally strong science class which did very well in University Scholarship Exams.

And then to Canterbury University?

My mathematics was strong enough to go straight into the second year, skipping the Stage Is, so I finished my honours degree in three, rather than four, years.

How did you get into economics?

My honours class all wanted to do an extra course in our second year at university. I could not do statistics because it clashed with German Reading Knowledge (a language was compulsory for a science honours degree) so I enrolled in Economics I. I turned up at the enrolment desk. The professor, Alan Danks, palpably sighed – presumably something like ‘not another one; we already have 200 in the class’. I explained I had a clash between a Pure Maths III lecture and one of the Economics I lectures. He beamed ‘Pure Maths III; sit down, boy’. (I don’t know if he actually said ‘boy’ but you always felt he did.) He arranged special weekly tutorials with Graham Miller to cover the gap, and he put me in one of his own tutorial groups. In my last year at university he jumped me into third-year economics saying second-year economics would not challenge me enough. It may well have been Canterbury economics’ first knight’s move.

Frank Tay’s development economics course introduced me to one of my great economics interests. John Ward, across from Lincoln, gave a course of agricultural economics which was my introduction to applied economics, although there is a good chapter in Paul Samuelson’s wonderful text, Principles of Economics (4th ed) which has also has that memorable description of how milk is delivered to one’s house in the morning (or used to be), by anonymous market transactions not be a centralised planning system. It has shaped my thinking about the market for the rest of my life.

Samuelson is the twentieth-century economist I admire most after John Maynard Keynes. He could write. I studied Keynes’ The General Theory with one finger on the book and another on Alvin Hansen’s Guide to Keynes. Other economist included John Kenneth Galbraith and Joan Robinson – it is a pity her Economic Philosophy is so forgotten.

Why did you go into economics?

I was already involved in political activity and had gone to a student-run summer school – the ‘University of Curious Cove’ – in the 1961/2 summer vacation. One of the lecturers was Bill Sutch on the future of the New Zealand economy; he was inspiring but I thought I could do better – such is the arrogance of youth. Wolf Rosenberg spoke of the dangers of being an economist and the young man ignored his wisdom.

            Some decades later I realised that the reading I had been doing at high school, especially the Fabian literature, was a sound introduction into late nineteenth-century (i.e. emerging neoclassical) economics.

Who were the university teachers who had the greatest influence on you?

Karl Popper still presided over Canterbury science despite having left a couple of decades earlier. My most important teachers were Derek Lawden, Professor of Mathematics, and Danks.

            It took decades to appreciate how thoroughly Lawden trained me as a mathematical modeller, which is at the heart of formal economics thinking. Modelling is about approaching a system or problem holistically, rather than just a part of it. H.L Mencken said ‘there is always a well-known solution to every human problem – neat, plausible, and wrong’. (The fate of the political opposition, I suppose.) It arises because it ignores the whole picture. I once assumed everyone else was as fluent a modeller as I was, but they are not, not having benefited from Lawden. (Later in my career I also benefited greatly from working with Bryan Philpott and his suite of computable general equilibrium models.)

            People often make elementary mathematical mistakes. The short recession in the late 1990s was in part precipitated by the RBNZ using a mathematical equation which was dimensionally inconsistent.

            Danks was probably the best university teacher I had. We joked he never taught us anything. In the first half of the lecture he told us what he had said in the last one and the second half was devoted to what he was going to say in the next.

It must have been a pretty traditional economics?

It was, but I benefited from doing it. And Danks was pushing us towards the more mathematically based economics. His third-year textbook was William Baumol’s wonderful Economic Theory and Operations Analysis.

            Additionally, about a month into my Economics I year, I bought books by Gerard Debreu, Ken Arrow and Tjalling Koopmans – all Nobel laureates in economics. That was frontline stuff. I particularly loved Koopmans’ Three Essays on the State of Economic Science, which is a brilliant technical exposition written by a very humane person. I read Galbraith’s Affluent Economy about the same time.

            Danks laboriously expounded the standard condition of the equality of marginal utility among consumption commodities, at the same time as we were introduced to Lagrange multipliers in Applied Maths III. (Lagrangians, at the heart of optimisation, are, in effect, prices.) I thought that if two lectures of economics took two lines of mathematics, I could do the 200 lectures or so to graduate in economics in 200 odd equations. – the arrogance of youth again. Later I realised Alan gave a marvellous exposition with nuances that the mathematics missed.

            So I was on the cusp of the shift from the earlier neoclassical economic paradigm which was only marginally centred on mathematics to the new era of a more mathematical economics.

You abandoned mathematics for economics?

That is what it seemed at the time, but on reflection I realise I graduated as an applied mathematician and went on to apply those skills in economics. That is why Lawden was so important in my development.

What did you after graduation?

I became a research assistant at the recently established NZ Institute of Economic Research in Wellington and I did a BA economics at Victoria. The department was pretty plodding but there was the odd memorable teacher. John Young taught labour economics with a solid foundation in traditional neoclassical economics. Labour economics is the better subject for being mathematically restrained. John Zanetti gave a course on growth models which was an excellent introduction to the difference between models of the physical world and those of the social world, while Peter Lloyd’s international trade course taught me about geometrical presentations. I also valued George Hughes of philosophy – doing non-relevant courses can be can be invaluable. (Enjoyed doing English I too.)

It does not sound as though you learned much in your student years at VUW

I learned most was at the Institute. Conrad Blyth, back from Cambridge, introduced New Zealand to the new growth theories of Bob Solow and established macroeconomic forecasting (Quarterly Predictions) which, while not the first in New Zealand, was certainly the most sophisticated. I also learned a lot from interaction with the other senior economists, especially Peter Elkan, who was trained in three economics paradigms – European Institutional, Marxist and Cambridge. The Institute was highly research focused, enabling me to develop a more quantitative mode of thinking.

The Next Step Was OE?

I was applying for overseas scholarships. Danks, by now chairman of the UGC, told me I would be offered a scholarship to the London School of Economics. That would have been an interesting career move because they had some very good economists. However I missed out on that heartland of 1960s student unrest by taking an assistant lectureship at the University of Sussex.

Without being rude I am surprised that someone from so far away got the job.

They wanted a good mathematical economist and at the time they were scarce. In truth, they did not know how to use one.

So your time at Sussex was a failure?

To the contrary, it was terrific. I chose teaching at Sussex over the scholarship at LSE because Sussex prided itself on its multi-disciplinary approach to knowledge. And so I found myself in an economics department imbedded in a social science faculty with its Institute of Development Studies right next door. (Its director was Dudley Seers, who grew up in New Zealand and constructed our first national accounts.) Yes, I worked as an economist but I interacted with a host of scholars from other disciplines – even taught in some others. I have never met such a kaleidoscope of intellectual activity in a university; the closest was at Harvard, but that institution is too big to be so intense.

            The Sussex experience meant I am comfortable to call myself a ‘political economist’ in the nineteenth-century sense of an intellectual who engages across the spectrum of the social sciences. (Later, while working in social economics, I was called, almost sneeringly, a ‘social economist” – by colleagues who spent a lot more time in the pub.)

Who Particularly Influenced You?

Too many to mention. I got on really well with the senior professor of economics, Tibor Barna, who despite his eminence in input-output modelling and industrial economics, could be very eccentric in a way which provided shrewd insights.

             I also valued Janos Kornai – later a chairman of the Harvard economics department – who gave a series of lectures on planning modelling which was my introduction to general equilibrium economics and tied together much which I had taught myself. Once I asked what he thought of Marx. (He was based in Hungary which still had a Communist regime.) He said Marx did not have much to say in economics, but was important philosophically.

What about you and Marx?

Sussex’s senior professor of sociology was Tom Bottomore, one of the world’s most eminent Marxist scholars. I took a much valued course under him; it did not have much economics though. Karl Marx was one of the nineteenth century’s greatest intellectuals with whom one must engage. That said, Marx wrote he was not a Marxist; in which case neither am I.

So what are your politics?

Eclectic. In my youth I was greatly influenced by Fabianism, which is evolutionary rather than revolutionary socialism; Methodist rather than Marxist. I spent time with the VUW social anarchists group – they mainly talked convivially than did anything – where I learned to distrust power. I am more anti-centralisation than the majority of the New Zealand left and centrists – it is a scepticism which fits in well with my admiration of the market. But I do see a need for some centralisation, acknowledging that tension. My social justice philosophy follows John Rawls – one should judge a society by how it treats its worst off. I got there before I read him; he systematised my thinking.

Why did you return to New Zealand?

Home sickness really; air travel was terribly expensive for short sojourns. And we thought New Zealand was the best place in the world to bring up children. It may still be, providing you are middle class or, as I think of myself, professional working class.

The second part of this interview is IN OPEN SEAS: Part II: Launched (1970-1986). The third part is IN OPEN SEAS: PART III: Paddling (1986- )

IN PRAISE OF THE VIENNESE SCHOOL OF ECONOMICS

This entry was posted in History of Ideas, Methodology, Philosophy on by .

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas: Janek Wasserman (Yale University Press; 2019)

Asymmetric Information, Issue No. 70 / April 2021 p.7-8.

Mentioning to colleagues that I was reading a book on Austrian economists almost invariably led to strong responses – sometimes positive, more often negative. But, typically, their responses were to a caricature of what I was reading. As Janek Wasserman shows in his The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas the contributions of Austrians to economics have been diverse and significant.

I am going to be a little perverse and refer to these economists as the ‘Viennese School’ reserving, as I shall explain, the term ‘Austrian School’ to one of its later developments.

Over a century ago, Vienna was the capital of a large, ethnically diverse Central European empire. In 1900 it contained 1.7 million people, four times Wellington today and was relatively wealthy. (The Austro-Hungarian Empire’s population was then 47 million.) It was an exciting and stimulating city; Sigmund Freud, Gustav Klimt and Gustav Mahler come readily to mind. A little later some of the most important philosophers of the twentieth century lived there.

Economics was exciting and stimulating too. The Viennese School of Economics began with Carl Menger (1840-1921) who in 1871 published Principles of Economics, which argued that unlike the Classical economists’ belief that value inherently resides in a commodity, it resided in human wants. With Stanley Jevons, who published along similar lines in the same year, and Leon Walras, Menger inaugurated the neoclassical economics era. (A minor grumble is that the book hardly connects the Austrians with English economists. Alfred Marshall is insufficiently mentioned to appear in the index; Lionel Robins’ importing of Austrian ideas is given due weight.) Eugene von Bohm-Bawerk (1851-1914), best known for his work on capital theory, and Friedrich von Wieser (1851-1926), who made a number of innovations picked up later, were the other leaders of the first generation of the Vienna School.

The school was characterised by methodological individualism and was strongly anti-Marxist, partly because of its political stance – virtually all the school came from the elite bourgeoise –but also because Marx was a classical economist and his critics had moved past his theory of value. (Ironically, Vienna was also the home of Austro-Marxism, about which my sociology teacher, the eminent scholar Tom Bottomore, wrote that they revealed ‘the possibilities that are still to be found in a Marxist social science as an instrument of human liberation and a rational organising of human life’. Another significant Vienna economist who does not come under either rubric is Karl Polanyi (1886-1964). Many consider his The Great Transformation seminal; it obviously influences my Not in Narrow Seas.)

The second generation of the Vienna School was an astonishing constellation including Ludwig von Mises (1881-1973), Joseph Schumpeter (1883-1950), Fritz Machlup (1892-1983), Friedrich Hayek (1899-1992), Gottfried Haberler (1900-1995), Oskar Morgenstein (1902-1977), Paul Rosenstein-Rodan (1902–1985) and John von Neumann (1903-1954). Max Weber (1864 – 1920) was also involved.Their contributions were so diverse that they cannot be concisely summarised. Suffice to say that there was a commonmethodology underpinning their work and that despite the reputation of the first generation there was an empirical stream and not all eschewed mathematics (Menger was far less quantitative than either Jevons or Walras).

The school functioned around regular – apparently vigorous – seminars followed by a retreat to coffee shops – an integral part of Viennese culture – which, from the evidence of their drinking songs, could be quite jolly. While there were theoretical differences and personality clashes, the economists supported one another (including helping find one another jobs and funding – a practice which continued when they left Austria and the coffee shop culture ended).

For the Viennese School ended. In part it was because Vienna lost its empire in 1919 and hence the great affluence which came with it. This was compounded by an increasingly illiberal regime (including anti-Semitism) and by 1940 all had left Austria for America. The exception was Hayek who, despite some time at the University of Chicago, spent most of the latter part of his life in Europe, including at the University of Salzburg (which he described as a mistake because its economics department was small and its library facilities were inadequate) as well as LSE.

Generally, the Austrians integrated well into the American economic culture and it is their work there by which we know of them best. However, von Mises and Hayek abandoned analytic economics when they crossed the Atlantic and it is for them, particularly von Mises, that the term ‘Austrian School’ becomes useful. Hayek, in particular, had made sterling contributions to economics in Vienna, but the two became more interested in political philosophy and ideology. Hayek wrote The Road to Serfdom, published in 1944 and subsequently selling more than two million copies, established the right-wing Mount Pelerin Society and his intellectual impact on Thatcherism is well known.

The von Mises story is more complicated and more important. His arrival in America was not initially a great success but he steadily built up a following which led to the establishment of the Mises Institute in Alabama, while his thinking is very influential at the George Mason University in Virginia. It is such institutions and their followers who comprise the Austrian School with its ideology of a (capitalist) liberalism which does not see a significant role for government activity; a common diagnosis of perceived economic failure was ‘interventionism’. Ironically, today there are few Austrians, if any, who are members of the Austrian School.

The term ‘Austrian economics’ is often associated with Austerianism, the strategy of imposing austerity when facing economic and financial difficulties and thereby reducing the scale and scope of the state. Consider ‘wages and taxes should be lowered to spur recovery … Removing price and wages controls, stripping power from the unions, and reducing state expenditures would restore stability and encourage growth’.(p.133-4) It may sound like contemporary Austerianism, but it is from von Mises during the Great Depression. (The policy did not work that time either.)

Austrian School economics is considered ‘heterodox’ – although that does not mean it is wrong. However, in my judgement, its economics is dominated by its ideological underpinnings. That was not true for Viennese School economics, much of which has been incorporated into orthodox economics to the extent that today it is hardly recognised. As the book demonstrates, it is worth tracing its origins as a part of understanding where modern economics has come from.

As I read the book, my mind wandered to whether there could ever be a significant Wellington School of Economics (most New Zealand economists live there). The city is only a quarter of the size of fin de siècle Vienna. Two world class economists – the relevant proportion – if they stayed, would be below the critical mass. In any case, while Austrians are multilingual, their School’s natural competitors were German whose economic thinking at the time was overwhelmed by the German Historical School which was becoming sclerotic. On the other hand, English-speaking New Zealand economists tend to imitate their US brethren, even where US economic circumstances are very different: the New Zealand dollar is not the international currency; competition policy ought to be different for a smaller market.

I am also struck how we fail to seize opportunities. World leaders in the areas said a couple of research programs were innovative, but we dropped the ball. For instance, in the early 1980s they told me that Brian Philpott’s CGE modelling was pioneering. But he was never given the resources to sustain it, while his university chose not to appoint staff to support him and continue his work. It is true that the models were antipathetic to Rogernomics and, even more unforgivably, they predicted correctly it would fail. The dominant ideology was conservative and intolerant of innovation. In contrast the Vienna School did not challenge the Hapsburg order. A crucial factor to its success, reinforcing this conservative bias, was that the school was generously funded by the Rockefeller Foundation; the Austrian School in the US has been sustained by private donations from the right wing. So, no, there is not going to be a Wellington School of Economics, just a colonial outpost of the US. One can only dream.